Additional Borrowing Question

Savernotspender

Hello,

We've been looking into building an extension and think we'll need to borrow £35k, I've never dealt with getting additional borrowing so I've got a few questions that I'm hoping someone might be able to help me with.

Our mortgage at the moment is with Tesco and is Fixed until Jan 2018 (LTV under 60%, 1.29%), having had a look at their website they say that they only offer additional borrowing at their SVR which is currently 3.98%

My questions are; can we approach another lender to borrow the additional £35K to get a better rate but then we have two mortgages from two providers for the same property?

Using the mortgage calculator, if we borrowed the £35K at the SVR over 20 years, we could afford to overpay and get it paid off in about 5 years so should I not worry too much about the rate?

Also when our fix is up in 2018, would I then re-mortgage both the "old" mortgage and the £35K mortgage and combine them in any case?

Many thanks for any comments

SavingSteve

See comments below

Savernotspender wrote: »

Hello,

We've been looking into building an extension and think we'll need to borrow £35k, I've never dealt with getting additional borrowing so I've got a few questions that I'm hoping someone might be able to help me with.

Our mortgage at the moment is with Tesco and is Fixed until Jan 2018 (LTV under 60%, 1.29%), having had a look at their website they say that they only offer additional borrowing at their SVR which is currently 3.98%

My questions are; can we approach another lender to borrow the additional £35K to get a better rate but then we have two mortgages from two providers for the same property? No, as Tesco will want a first and only charge on the property, you can not secure another loan with another lender on it

Using the mortgage calculator, if we borrowed the £35K at the SVR over 20 years, we could afford to overpay and get it paid off in about 5 years so should I not worry too much about the rate? Make sure if you do overpay you pay down this specific additional loan, otherwise they may split any overpayments prorata over the two accounts, you need to be explicit to them which account you are paying down (hopefully they have different reference numbers so would be obvious)

Also when our fix is up in 2018, would I then re-mortgage both the "old" mortgage and the £35K mortgage and combine them in any case? Yes, you can then look at fixing them on a new rate

Many thanks for any comments

kingstreet

Savernotspender wrote: »

Hello,

We've been looking into building an extension and think we'll need to borrow £35k, I've never dealt with getting additional borrowing so I've got a few questions that I'm hoping someone might be able to help me with.

Our mortgage at the moment is with Tesco and is Fixed until Jan 2018 (LTV under 60%, 1.29%), having had a look at their website they say that they only offer additional borrowing at their SVR which is currently 3.98%

That is not unexpected. Further advance rates are normally higher.

My questions are; can we approach another lender to borrow the additional £35K to get a better rate but then we have two mortgages from two providers for the same property?

You would need to obtain a second charge/secured loan from a finance house. What you see on the high street is first charge business and you already have that with Tesco.

Using the mortgage calculator, if we borrowed the £35K at the SVR over 20 years, we could afford to overpay and get it paid off in about 5 years so should I not worry too much about the rate?

Possibly, but try to get the best rate you can from however you source the money.

Also when our fix is up in 2018, would I then re-mortgage both the "old" mortgage and the £35K mortgage and combine them in any case?

Yes. This will mean a remortgage. That means a whole new mortgage from a new lender. Your existing lender will not do this.

Finally, don't forget this is going to be based on the current value, not what it will be worth after it's done so you need enough equity to make it worth based on current value.

Savernotspender

Thanks for both the comments.

That makes me feel much better, basically I don't have much of a choice but to use Tesco but if I move mortgage company after the fix ends then the higher rate will only have been for a year, or if I decide to stay with Tesco I'll just concentrate on over paying the higher rate mortgage.