Overpay or save

marneyr

Hi All, 

I have a 260k mortgage and and have had plans for an extension and loft conversion which will cost circa 140-180k. Currently on a 1.25% mortgage until nov 2026. Should i just over pay or save in an isa, or a combination of both?

Thanks

Brie

You'll get more benefit from saving in or out of an ISA than you would be paying extra on a mortgage with that low an interest rate.  Even at 4% and on a higher tax rate saving is better value for you.  

WindfallWendy

I have a similar dilemma. 

Do you have £140k sitting around or will it be additional lending? Because the additional lending will be at whatever the current rate for new lending will be, not at your current lovely low rate.

The other thing I'd be keen to make sure of is that the value of your house goes up by at least £140k, and ideally that you'll be in a position to remortgage in 2 years at the best LTV rate. We managed to do this 3 years ago after a £60k extension added £100k to the value of the house.

For my own anticipated loft extension, it would be to ensure saleability of my home when we get around to selling in the future. Our neighbourhood is full of extended houses and we are a bit out of place with a 3/4 bed detached as most are 4/5/6 beds. I still need to make a decision on what is the most sensible option (because another option would be to use the money I have to pay of the mortgage. OR even just to an offset mortgage in 2 years to reduce interest charges).

Looking forward to seeing the advice you get on this topic!

WindfallWendy

Re-reading your post though... You are looking at the best way to save the £140k for the work aren't you? Silly me!!

ISA. Don't overpay when the rate is so low. There are probably other reasons not to overpay too, but that's my instinct. We stopped over paying on our 0.98% mortgage and have been saving into regular savers (6-8%) instead (because our ISA allowances are maxed out already).

marneyr

Hi there, thabks both. 
The lending of the 140-180k would be additional and on top of my existing mortgage. Whether this would be a bolt on or a secondary separate mortgage would need to be confirmed. I could over pay whilst my mortgage interest is so low but as you say interest rated are 4.75% so saving makes more sense. Maybe its the insecure bit of me that takes great pleasure in seeing my fibal mortgage number getting chipped down each month rather than in an isa that numbers dont directly compare. 

My house was purchased at 385 and is likely worth 475. With the works (if i were to ever get the money to do them) and adding 2no. Bedtooms etc the total price would go up a little to mybe 550 or 575. We see ourselves staying here for quite some time (20+ years) so ROI not an immediate concern. 

silvercar

So you are spending 140-180 to add 75-100 to your property value????

Would make more sense to move.

silvercar

I'll move this to the mortgage board.

gzoom

marneyr said:

We see ourselves staying here for quite some time (20+ years) so ROI not an immediate concern. 

If you see your self there for a long time it's probably worth thinking about doing the works sooner rather than later. Inflation might be lower but you can guarantee building costs in 2025/26 will be higher than now.

We delayed our build start date from 2020 to 2023 due to saving up so we really got hammered by Inflation. I think our build would have come in 15-20% cheaper had we got on with the build in 2020.

marneyr

silvercar said:

So you are spending 140-180 to add 75-100 to your property value????

Would make more sense to move.

"She who must be obeyed" cannot be reasoned with. But i agree with you. 

marneyr

gzoom said:

marneyr said:

We see ourselves staying here for quite some time (20+ years) so ROI not an immediate concern. 

If you see your self there for a long time it's probably worth thinking about doing the works sooner rather than later. Inflation might be lower but you can guarantee building costs in 2025/26 will be higher than now.

We delayed our build start date from 2020 to 2023 due to saving up so we really got hammered by Inflation. I think our build would have come in 15-20% cheaper had we got on with the build in 2020.

I agree with the sentiment of this. I always want to hurry things along. But, doing this will cancel/switch me onto a new larger mortgage with a much higher interest rate. I could go from 1.25 to a new 5% (i havent actually checked current rates available) mortgage no? 

gzoom

marneyr said:

silvercar said:

So you are spending 140-180 to add 75-100 to your property value????

Would make more sense to move.

"She who must be obeyed" cannot be reasoned with. But i agree with you. 

We all love 'adding value' but unless you are seeing the house from the eyes of a true property developer then treat it as your family home first and foremost.

We bought our house back in 2017 and are just finishing some major renovation work not because we wanted to 'add value', but because we wanted to make the house work better for our family. The previous owners had a similar idea. 

As it happens, the value of the land where we live has gone up substantially recently, but that has zero actual benefit for our family, what has made a life changing difference is now living in a home that serves life in 2020s perfectly versus something that was OK back in the 1960s.