Best way to fund loft converstion whilst on mortgage

elteam

Hi friends,

 

This is my first post as a member of this forum. I am looking forward to sharing and gaining knowledge with you all. I am open to any feedback on my posts if you feel they can be improved.

 

I am seeking advice on the best way for my partner and I to fund a loft conversion on our 3 Bedroom detached property. We are hoping to start a family soon but realise that, with the new norm of remote working, we will soon outgrow this house. We had hoped to stay here for at least 10 years before upsizing to a bigger home. However, with the new changes in ways of working and the need to start a family soon, we now realise that we will need to upsize much sooner than we had planned.  

 

We have looked at 4-bed homes around our preferred areas and these are averaging at around £340-350k. We are considering our options i.e. move to a 4-bed property or convert the loft in our current 3 bed home into an extra bedroom with ensuite, and if space allows, add a small office too.

 

We bought our house in 2019, at a price of £245k. The house is currently valued at around £270k. This means that we have equity of £25k or so. Last year(2021),in May, we entered into a 5-year fixed rate mortgage with Lloyds bank. We currently owe £208,362 on our mortgage, and are left with 21 years to pay this off. The terms of our current mortgage are below:

 

 

Interest rate: 1.92% fixed until 31/05/2026, after which the rate that will apply is the variable rate.

Monthly payment: £989.39

Early repayment charge: 5% of amount repaid on or before 31/05/2022

                                         4% of amount repaid on or before 31/05/2023

                                         3% of amount repaid on or before 31/05/2024

                                         2% of the amount repaid on or before 31/05/2025

                                         1% of amount repaid on or before 31/05/2026

 

 

We are yet to get firm quotes for the loft conversion, however we believe that this will cost in the region of £30k.

 

Based on our details/current situation, The Lloyds mortgage calculator states that we could borrow up to £38,649 more on top of the mortgage.  To keep the monthly payments manageable, we would be realistically looking to pay back such a loan over a 10 year period. Lloyd is currently offering a 5 year fixed rate deal at  an interest rate of 2.74% until 2027.  There is a 5% early repayment charge until 2027. If we went ahead with this, it would work out to paying an additional monthly payment of £286 over the 5 year deal period, which would bring our total monthly mortgage and loan payment to £1276 per month.

 

I have also looked into secured personal loans. The cheapest loan I found, based on borrowing £30k for 10 years, worked out to paying £317 per month.

 

My questions are as follows:

 

1.     What happens at the end of the 5-year deal/period of the loan? Once our fixed interest deal for our mortgage comes to an end, before that of the loan, and we decide to find another cheaper fixed deal for the mortgage, would we be liable to pay the 5% early repayment charge for the loan? In such a case, would we be allowed to leave the loan in place until the deal ended and then move the loan somehow to another fixed deal? I am really confused as to how it would work!

2.     Would you recommend us going for the mortgage loan with Lloyds or are there any other options that you feel would be better suited for us based on the above details?

 

I will be forever grateful for any advice/ tips/ recommendations.

 

Many thanks