Roof Replacement: Wipe out savings, take out a loan or a bit of both?

Neathiopian

We've recently found out we need a new roof on the house we bought two years ago (knew there was a catch for it being at least £20,000 cheaper than the other houses that have sold on the street!) We've had a few quotes and thankfully, the most reputable contractor came with the lowest price. The roof replacement will cost just over £11,000.

I've got just over £10,000 in an ISA and my wife has around £8,000. Since moving I've said that that cash is for "house stuff" and replacing the roof certainly falls under that.

I'm inclined to wipe out the £10k in my ISA and my wife is happy to top it up, however, this would take our savings for a rainy day down to £7,000. We're expecting our first child in February and adding to a maternity pot, but also want to do a few more bits to the house before the baby arrives.

I've always been worried about debt and hate the thought of owing anyone else (other than the mortgage provider and car dealership) any cash, but wondering if taking out a loan for half the amount and repaying over 2 years would be a better option?

Really stuck as to what would be the best option. Any insight would be appreciated! Diolch!

Valli

Given you would, in all likelihood, be paying out more in interest on a loan than you would get on your savings it would make sense to use your savings to fund the roof replacement but…why not 'lend it to yourself". ie be your own bank.

Look at the options for a loan, along with the repayment schedule. Take the money out of the ISA and use that for the roof. Then pay the amount you would have been repaying, every month, to a savings account. This way you will build back the borrowed sum and restore your savings.

Jemma01

How good are you with credit cards? Do you have any concerns that it could spiral into a bigger debt? esp as a new child is coming and that's very expensive as it is. If you trust your spending habits, are you able to get 10k limit one for the job and pay it off before the interest-free period ends? That means you pay it off out of your income (not just the minimum, actually target the full payment before the interest-free period is up). This just breaks up the payment into a monthly schedule, but not delay the payment until the interest-free period is up.

My credit card came with 17months interest free period, that would make £590 per month + 1K up front to make up the 11K

saajan_12

I'd never get a loan for something you can afford to pay in cash. The monthly repayments you save will soon build the savings back up. If an emergency happened needing more than the £7k, you'll the same credit options to get a loan then as you do now. Plus you save the interest between now and then plus don't risk getting into a debt cycle.

MEM62

Borrowing when you can pay with cash rarely, if ever, makes sense. You are effectively paying interest to keep cash in an account 'just in case'. Whilst that may give you emotional comfort it makes no financial sense. In those circumstances you might as well deplete your savings and only borrow if you really need to.

ManyWays

If the roof would take your savings to zero, that would not be safe. But 7k plus the extra monthly savings you can make (because not paying the loan) at least until maternity leave low pay kicks in, sounds safe to me.

Perhaps leave the extra bits for the house until after maternity leave?

Sncjw

What is the problem with the roof. We thought we would need a whole new roof when all it needed doing was reaparing the side verge.

How quickly did you save the money? How quickly wll you save it back up? If you allocated it for house stuff then I would do it. Your roof will last for many years to come and it will be cheaper than getting a loan and paying interest. Also you will be able to choose how much to save back up a month and how much to put to future house stuff but with a loan you will have a set amount to pay back so less money to go future house stuff.