Further advance on mortgage

emspy12

Hi all, I’d be very grateful for thoughts on the pros and cons of the following.

I currently have a house worth £375000 and a residual repayment mortgage of £44000. I retire in ten years.

I am thinking of applying for a further advance of £40000 to carry out home improvements. But as I only have ten years to pay it off, the monthly payments are pretty high for my monthly budget. 

I plan to sell my house not long before my retirement, meaning I would have the capital in hand and could repay the outstanding balance out of it because my LTV, even after the increase, remains low. (I have another house I will move to). 

My question is: does it make financial sense to do this, I.e. have a further advance or second mortgage with a longer term than 10 years, that I would not plan to pay off in full before I sell the house? Or would it be better to tighten the belt and aim to pay the full amount off by the time the ten years is up?

I was lucky in some ways in that I just remortgaged last year before the interest hike on a five-year fixed rate, though I know my provider wouldn’t offer the same rate for the advance. But would they look askance at a plan like this? (I don’t think remortgaging is worthwhile because of the low interest rate I am currently on for the £44,000 original mortgage.)

Lastly, if I did stagger the term, would a further advance even be possible or would I have to take out a second mortgage?

K_S

@emspy12 First thing you'd have to check with your lender whether they will allow you to exceed the term of the original mortgage on an FA as many won't.

However, depending on your age, intended retirement age and specific lender policy, it might be possible to do everything in one swoop - extend the term of the original mortgage and take out an FA matching the remaining term so your minimum payments are at a comfortable level.

Even with a longer term, with a 10%/year overpayment allowance, and a 5yr fix end point, there is nothing is stopping you from paying off the mortgage before the end of the term even if you extend it. 

Best speak to your lender sooner rather than later as the closer you get to retirement, the most restrictive the policy usually is with respect to max term.

Second mortgage - do you mean a second charge loan from a different lender? That is a possibility but only if an FA from your current lender isn't forthcoming as that would be the most convenient and cheapest option in most scenarios.

emspy12 said:

Hi all, I’d be very grateful for thoughts on the pros and cons of the following.

I currently have a house worth £375000 and a residual repayment mortgage of £44000. I retire in ten years.

I am thinking of applying for a further advance of £40000 to carry out home improvements. But as I only have ten years to pay it off, the monthly payments are pretty high for my monthly budget. 

I plan to sell my house not long before my retirement, meaning I would have the capital in hand and could repay the outstanding balance out of it because my LTV, even after the increase, remains low. (I have another house I will move to). 

My question is: does it make financial sense to do this, I.e. have a further advance or second mortgage with a longer term than 10 years, that I would not plan to pay off in full before I sell the house? Or would it be better to tighten the belt and aim to pay the full amount off by the time the ten years is up?

I was lucky in some ways in that I just remortgaged last year before the interest hike on a five-year fixed rate, though I know my provider wouldn’t offer the same rate for the advance. But would they look askance at a plan like this? (I don’t think remortgaging is worthwhile because of the low interest rate I am currently on for the £44,000 original mortgage.)

Lastly, if I did stagger the term, would a further advance even be possible or would I have to take out a second mortgage?