Long term view on financing home extension

thebikemechanic

Hi all,

Couldn't decide if this was better asked in here, or in the savings forums...

We are hoping to complete an extension, comprising of dormer construction and stairs leading to roof space for a bedroom and ensuite and small study, and a conversion of lean to garage into permanent structure to the side of the house, for utility room, toilet/shower room and storage space. We believe this is our forever family home, and our kids are aged 4 and 2. The reason for the work is to be able to give the boys their own space as they grow up into teenagers as they currently share one small bedroom, and we have 1 toilet in the house shared by 4 of us. 

We are currently in the process of costing the works designed by the architect and I anticipate it will take a few years before we can proceed. We have a target in mind of 6 years max from now to complete the project, but of course would love to do it sooner. 

My question is: 

What is the best thing to do with our money leading up to this? Inititally it seemed obvious, putting all our spare cash into the highest interest savings account possible, and then having as much cash on hand to start the project as possible. 

This year though, our mortgage rates have gone from 2.8% & 3.1% (our mortgage with Halifax is split into two sub-accounts) to 4.9% and whats looking likely to be high 5%'s. Would there be a benefit into plowing as much money into our mortgage as possible, to then later remortgage and free up capital to fund the extension project? 

At the moment, mortgage payments are circa £1100 with a £190k balance outstanding, and we have about £800 monthly surplus to do something with. We have around £90k equity in the property at most recent valuation. 

Thanks for your thoughts in advance! 

grumbler

thebikemechanic said:

This year though, our mortgage rates have gone from 2.8% & 3.1% (our mortgage with Halifax is split into two sub-accounts) to 4.9% and whats looking likely to be high 5%'s. Would there be a benefit into plowing as much money into our mortgage as possible, to then later remortgage and free up capital to fund the extension project? 

At the moment, mortgage payments are circa £1100 with a £190k balance outstanding, and we have about £800 monthly surplus to do something with. We have around £90k equity in the property at most recent valuation. 

Well, with savings paying ATM more than 5% you can easily 'offset' your 4.9% mortgage until it gets more expensive. Even instant access cash ISAs pay now up to 5.5%, not to mention regular savings accounts and fixed-rate savings. Easy accessible cash is always better than money overpaid into a mortgage that you, generally, can access only by remortgaging.

thebikemechanic

Thanks - I think I'm definitely in danger of over-thinking this one it seems! Part of my thought process was around whether or not overpayments will be looked upon favourably when looking to borrow more further down the line, but I feel much happier having as much cash on hand as possible and looking to borrow as little as possible.