Does taking a home improvement loan makes sense in my case? 1 July 2021 at 1:13PM in Loans 6 replies 231 views

user1168934

I have never done this sort of thing so some advice will be much appreciated.

I would like to add a second bathroom to our house. I am able to pay for it upfront but because the interest rates are quite low I was thinking maybe I should take a (unsecured) home improvement loan and pay it off slowly each month over the next 2 or may be 5 years. This would allow me to keep my savings in case I need them.

Does that make sense? or am I missing something?

When my mortgage is up for renewal is this loan going to be a problem?

Is this going to cause any issues on my credit history?

[Deleted User]

You're missing that you could rebuild your savings with the money you won't be spending on loan repayments.

Any debt will be factored into future borrowing decisions.

Nebulous2

Any savings are unlikely to earn as much as it is costing you on the loan. Even at the most favourable rates you could be paying three times what you are earning on savings. You are talking about a costly option. 

Renewing your mortgage on a new deal at the same amount with the same lender is generally very straightforward. Moving for a better deal or increasing your borrowing would need to be underwritten and a loan would be taken into account for the sum borrowed and affordability. 

[Deleted User]

If you wanted to do it for 5 years, you could do the savings in an S&S ISA which would likely be long enough to beat the loan interest by a lot - I have been averaging 20% over the last 3 and 5 years is generally sufficient time for an ISA

user1168934

Deleted_User said:

If you wanted to do it for 5 years, you could do the savings in an S&S ISA which would likely be long enough to beat the loan interest by a lot - I have been averaging 20% over the last 3 and 5 years is generally sufficient time for an ISA

Nebulous2 said:

Any savings are unlikely to earn as much as it is costing you on the loan. Even at the most favourable rates you could be paying three times what you are earning on savings. You are talking about a costly option. 

Renewing your mortgage on a new deal at the same amount with the same lender is generally very straightforward. Moving for a better deal or increasing your borrowing would need to be underwritten and a loan would be taken into account for the sum borrowed and affordability. 

Thank you both. My savings are already in a S&S ISA. The return on these savings are more than the 2.99% interest I will have to pay on the home improvement loan. This is exactly why I am asking the question.

DrEskimo

user1168934 said:

Deleted_User said:

If you wanted to do it for 5 years, you could do the savings in an S&S ISA which would likely be long enough to beat the loan interest by a lot - I have been averaging 20% over the last 3 and 5 years is generally sufficient time for an ISA

Nebulous2 said:

Any savings are unlikely to earn as much as it is costing you on the loan. Even at the most favourable rates you could be paying three times what you are earning on savings. You are talking about a costly option. 

Renewing your mortgage on a new deal at the same amount with the same lender is generally very straightforward. Moving for a better deal or increasing your borrowing would need to be underwritten and a loan would be taken into account for the sum borrowed and affordability. 

Thank you both. My savings are already in a S&S ISA. The return on these savings are more than the 2.99% interest I will have to pay on the home improvement loan. This is exactly why I am asking the question.

You need access to these savings in case of an emergency, such as sudden job loss, illness or need for high cost replacement. Having this in a S&S account is not wise, as the time in which you need to access it may be a time when the markets are low. Investments are for long term growth, and I disagree that 5-years is close to being a sufficient time-frame.

Your exit strategy with investments is just as important as how you enter them, and the sensible thing would be to move to less volatile investments as you reach the point of needing to withdraw them. In your case, you would need to remain invested in higher risk investments to achieve the growth, where immediate emergency withdrawal could result in substantially less money.

• Have an emergency pot in a easy access savings account
• Have savings built up for any short-medium term spending
• Have investments for any medium to long term spending (10-20years)

In either case, leveraging a personal loan to invest isn't wise, so either wait till you have saved up enough, or withdraw your investments and keep some aside for emergency fund, and use the rest for renovations. 

My 2ps worth....

[Deleted User]

DrEskimo said:

user1168934 said:

Deleted_User said:

If you wanted to do it for 5 years, you could do the savings in an S&S ISA which would likely be long enough to beat the loan interest by a lot - I have been averaging 20% over the last 3 and 5 years is generally sufficient time for an ISA

Nebulous2 said:

Any savings are unlikely to earn as much as it is costing you on the loan. Even at the most favourable rates you could be paying three times what you are earning on savings. You are talking about a costly option. 

Renewing your mortgage on a new deal at the same amount with the same lender is generally very straightforward. Moving for a better deal or increasing your borrowing would need to be underwritten and a loan would be taken into account for the sum borrowed and affordability. 

Thank you both. My savings are already in a S&S ISA. The return on these savings are more than the 2.99% interest I will have to pay on the home improvement loan. This is exactly why I am asking the question.

You need access to these savings in case of an emergency, such as sudden job loss, illness or need for high cost replacement. Having this in a S&S account is not wise, as the time in which you need to access it may be a time when the markets are low. Investments are for long term growth, and I disagree that 5-years is close to being a sufficient time-frame.

Your exit strategy with investments is just as important as how you enter them, and the sensible thing would be to move to less volatile investments as you reach the point of needing to withdraw them. In your case, you would need to remain invested in higher risk investments to achieve the growth, where immediate emergency withdrawal could result in substantially less money.

• Have an emergency pot in a easy access savings account
• Have savings built up for any short-medium term spending
• Have investments for any medium to long term spending (10-20years)

In either case, leveraging a personal loan to invest isn't wise, so either wait till you have saved up enough, or withdraw your investments and keep some aside for emergency fund, and use the rest for renovations. 

My 2ps worth....

A S&S ISA is considered an investment of 5 years or more, it's certainly not a 1-2 year deal I agree but 5 years is more than enough unlike say a pension. You'll see the likes of HL, HSBC, Fidelity etc all say 5 years or more is the norm