Borrow more than we need or drop mortgage amount

jonnydeppiwish!

Hi everyone 

Quick question, more of a what would you do. 

We’re buying a new house that’ll need some renovation, probably around £60,000. This will be our 4th renovation and is more cosmetic TLC than complete rip out.

We had the option to rent our current place out and release equity (let to buy), plus a mortgage on the new property of £195k. So credit checks all done, mortgage offers received. This would have left us with £20k cash to start the work.

Now our neighbours have offered to buy our current house, which we’re all for as we’d rather not be landlords. Together with the cash from this sale, we’ll only need £85k for the onward purchase.

Would you keep the £195k mortgage or go back and change it to lower? We have no other credit commitments and keeping it would allow us to complete all work, and potentially gift our child £30k towards their first home.

Aim was to overpay by double on the mortgage each month.

Grateful for your thoughts!

Brie

I don't know but won't the difference in amount required be noticed by the bank?  

That said I'd be treating these as two separate things.  Get your new place with the £195k and start the reno and also sell the old house to the neighbour.  That sale might fall through.  Is the equity release necessary for the purchase of the new place essential?

jonnydeppiwish!

Hi no, if I sell current or rent current, it’s still based on the same LTV, it’s just we’d have a large lump of equity if we sell the current.

Equity release would be essential if we couldn’t sell current house.

thanks 

housebuyer143

Depends on the rate. If your rate is less than 5% then I would take more as you can offset it about the same in the bank. 

jonnydeppiwish!

housebuyer143 said:

Depends on the rate. If your rate is less than 5% then I would take more as you can offset it about the same in the bank. 

Thanks, rate is 4.04% and that was the plan.

amnblog

Option 1. Take the smallest mortgage, refurbish as you can afford, no gift to your child

Option 2. Take the larger mortgage, cover the extra interest, refurbish without delay, gift to child

This is an emotional not a financial question - you know the cost of Option 2.

Which route to you feel better about?

Have you considered?

Option 3. Take a smaller mortgage, cover the extra interest, refurbish as you can afford, gift to child

wacky75

Speaking from experience, I'd borrow more.
Reno's always cost more than you think.
We are in a situation where we didn't borrow enough when the rates were low when we moved two years ago, now we can't borrow any more because the rates have gone up so much, so we are mid-reno without the cash to finish it.
Good luck !

jonnydeppiwish!

wacky75 said:

Speaking from experience, I'd borrow more.
Reno's always cost more than you think.
We are in a situation where we didn't borrow enough when the rates were low when we moved two years ago, now we can't borrow any more because the rates have gone up so much, so we are mid-reno without the cash to finish it.
Good luck !

Thanks - this is Reno number 4 and no real structural work planned. We tend to DIY-Kitchens.com, employ individual trades, and project manage ourselves. Last one was £32k, previous £132k, should be around £60k.

We do like the odd expensive piece ie double sided in chimney log burners, decent flooring or worktops, but depends on the potential sale in a few years.