Overpaying mortgage before additional borrowing on mortage

MrsChillers

Hi Everyone,

After 10 years of living in a run-down, wreck of a house trying to raise our kids in it and developing a love/hate relationship with the place, we are finally having planning to have some desperately needed home improvements done to the house later this year. Money has always been a bit tight as we previously had debts to pay off (we are now debt free!) and also due to small kids with the childcare bills that accompany them, plus ongoing work to the house to get things improved. 

To achieve the bigger works (new kitchen and extension with a much needed 2nd loo!) we are going to have to borrow extra on our mortgage. We are in a good position I think. We both work and husband earns a "good" wage, kids are both attending school so no major childcare bills, no cars on finance or anything like that fortunately. At the moment we have money saved for house work/emergencies but its not a lot, it is under £1000 so I will keep on topping up this pot as Martin advises. 

I have been reading about overpaying the mortgage which will reduce the balance owed and the term of our mortgage, is it worth starting this now whilst we can afford to even though we are only 6 months away from applying to borrow extra? Or is it just better to put any spare income into the emergencies/house fund pot just in case? I have been thinking about this for a few months and I have been scared to commit to overpaying the mortgage in case 1) something goes wrong and then we don't have much money and 2) it may not make a huge difference 6 month of overpaying £200 a month. For context our house is currently worth £250k before the works, we owe £108,000 and still have about 21 months left on a delicious 1.9% fix. We are looking to borrow an additional £40k as family member is kindly gifting us some funds towards the upcoming works. 

I am sorry for the essay, but we have faced financial difficulty before and I want to be smart.

Brie

With a mortgage at 1.9% I'd be putting the extra into savings.  You're bound to find somewhere that's going to offer more than that.  Then you'll have that extra in your back pocket in case the house stuff costs a bit more than expected or you decide you want buy new pots and pans for the new kitchen.  (it all sounds very exciting!!) (& well done for getting rid of the debt too!!!)

MrsChillers

Thank you so much for your reply Brie! I can't believe after 10 years, 2 kids, the stress of debt resulting in IVA (which we completed 18 months early - in a few months it drops from my credit file completely) and the general issues with the house - we are in a position where things are so much better. We feel very, very lucky and just hope the application for additional borrowing on the house goes smoothly. I am apprehensive.

Hoenir

MrsChillers said:

 still have about 21 months left on a delicious 1.9% fix. 

Prepare yourselves for what lies ahead. Those 21 months will soon pass and your fixed monthly outgoing will most certainly rise by a sizable amount. 

In the meantime. Save the money into an ISA and benefit from an interest rate that's higher you are currently paying.  You never know when that unexpected bill might rise. Easy to slip back into using a credit card and being on the eternal repayment treadmill. 

MrsChillers

Thank you, I keep playing around with the mortgage repayment calculator so we can try to prepare for the repayments to rise as the interest rates have gone up. Its good to have an idea of what they could be. December 2026 I am desperately hoping it'll be 4% or less, but I don't know if this is wishful thinking! All I can say is, I am so thankful we had the lower rates when we were struggling so we were always able to pay the mortgage. We try to only use the credit card for emergencies (both have a 0%) deal at the moment and if we use it for food shopping, we clear it hoping to improve credit score but I am not sure what difference it all makes really!

Hoenir

MrsChillers said:

I am desperately hoping it'll be 4% or less, but I don't know if this is wishful thinking! 

The low interest rate era has more than likely past. Even 4% is extremely good by historical levels. Prepare for the worst then there'll be no nasty shocks.