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  • FIRST POST
    • gcdona
    • By gcdona 12th Mar 18, 3:29 PM
    • 11Posts
    • 1Thanks
    gcdona
    Home Improvement Loan v Remortgage
    • #1
    • 12th Mar 18, 3:29 PM
    Home Improvement Loan v Remortgage 12th Mar 18 at 3:29 PM
    Hi


    I'd be grateful for some guidance or expertise re a home improvement loan.


    We have just ended our 2 year fixed term and due to remortgage but we have fortunately built a fair bit of equity due to houses in our street being sold for over the odds. According to Zoopla we are valued at £245k with a mortgage of £160k, equity of approx. £85k.


    We plan to put an extension on the house, with quotes so far of £45k


    At first we had planned to just add this to remortgage and pay it over the 25 year term but I had a read through the (very helpful) remortgage guide from this site and noted Martin's comments, "Borrowing £1,000 at 5% over 20 years is more than twice as expensive as 10% over 5 years. Put that way, it suddenly doesn’t seem so much of a no-brainer now does it?"

    We will have to remortgage anyway to get a fixed rate again, if going with the same lender and our current loan amount, we appear to be eligible for 5 year fixed rate is 2.19% (3.2% APRC), initial monthly payment of £694.


    If we remortgage including the £45k, the 5 year initial fixed rate is 2.34% (3.3% APRC), initial monthly cost of £904.


    Alternatively, I have found a home improvement loan of £45k over 10 years with an interest rate of 6.9% APR @ £515.33 per month


    Obviously this would make a massive difference to our monthly payments but if it makes a big difference to the amount we would pay long term we'd be prepared to make the sacrifice.


    My wife and I are both in full time employment with combined salary of £55k, we have 2 kids (monthly child care of £300), approx. 7k debt total apart from mortgage. Credit rating is good for us both.


    My concerns are:
    Will the home improvement loan make that much of a difference, or would we be as well increasing what is paid on the remortgage?
    How difficult will it be to be accepted for 2 separate loan applications (remortgage then home improvement loan) does it matter what order we apply?


    Neither my wife and I are great with figures so this is all like another language to us, I'd appreciate any help or advice re how we approach this so we can hopefully save money in the long term.


    Many thanks
Page 1
    • venison
    • By venison 12th Mar 18, 4:43 PM
    • 2,147 Posts
    • 2,294 Thanks
    venison
    • #2
    • 12th Mar 18, 4:43 PM
    • #2
    • 12th Mar 18, 4:43 PM
    The first question is do you absolutely need a 45k extension? Or would a move to a bigger home in a slightly less expensive area make more sense?
    Ex Board Guide
    • Schoolworker
    • By Schoolworker 12th Mar 18, 5:20 PM
    • 257 Posts
    • 563 Thanks
    Schoolworker
    • #3
    • 12th Mar 18, 5:20 PM
    • #3
    • 12th Mar 18, 5:20 PM
    We did an extension last year and there is always extra costs over and above the build cost - ours increased by £6k and then on top of this we paid kitchen and bathroom furniture so we did use some of our savings. We borrowed £65k from mortgage company for 2 storey rear extension but all cost including carpets etc came to £79k. We extended output mortgage term but I will try to overpay and pull the term back in. I would not consider a loan myself as it seems higher interest.

    You need to calculate if you can afford this and then if you wish a.lpan or extra borrowing.good luck
    • gcdona
    • By gcdona 12th Mar 18, 9:33 PM
    • 11 Posts
    • 1 Thanks
    gcdona
    • #4
    • 12th Mar 18, 9:33 PM
    • #4
    • 12th Mar 18, 9:33 PM
    Yes, going by house prices 'with extension' it makes sense for us and we also have a great location etc. so the extension is what we are after.
    • gcdona
    • By gcdona 12th Mar 18, 9:35 PM
    • 11 Posts
    • 1 Thanks
    gcdona
    • #5
    • 12th Mar 18, 9:35 PM
    • #5
    • 12th Mar 18, 9:35 PM
    We did an extension last year and there is always extra costs over and above the build cost - ours increased by £6k and then on top of this we paid kitchen and bathroom furniture so we did use some of our savings. We borrowed £65k from mortgage company for 2 storey rear extension but all cost including carpets etc came to £79k. We extended output mortgage term but I will try to overpay and pull the term back in. I would not consider a loan myself as it seems higher interest.

    You need to calculate if you can afford this and then if you wish a.lpan or extra borrowing.good luck
    Originally posted by Schoolworker
    Thanks for the advice.. the builders quote was actually £35k but we have included the extra £10k for kitchen and added costs.
    • gcdona
    • By gcdona 13th Mar 18, 10:48 AM
    • 11 Posts
    • 1 Thanks
    gcdona
    • #6
    • 13th Mar 18, 10:48 AM
    • #6
    • 13th Mar 18, 10:48 AM
    I've being doing my calcs on this and if I'm right (good chance I'm not) then we would save approx. £10k from actual amount paid if we remortgage at our current value and used a home improvement loan for the extension, compared to remortgaging the full amount.


    However, it is going to cost an extra £305 a month (ouch) and it would also concern me that we could get accepted for one loan and not the other. I am also unsure how flexible this would be for future remortgages, i.e. in 5 years when the initial rate ends we are still going to have a substantial debt affecting our credit rating


    I considered another alternative might be taking the full sum as a remortgage at the proposed initial monthly cost of £904, fixed for 5 years but top this up by an extra £100 each month so we are at least taking a dent out of the interest payments...


    I think we are probably going to have sit down with a mortgage adviser but because they work on commission, I'm not sure whether we will get a genuine impartial recommendation on what would be most suitable approach.


    Again, any recommendations, corrections, comments would be appreciated because it is a massive commitment for us


    Many thanks
    • zx81
    • By zx81 13th Mar 18, 10:51 AM
    • 17,225 Posts
    • 18,307 Thanks
    zx81
    • #7
    • 13th Mar 18, 10:51 AM
    • #7
    • 13th Mar 18, 10:51 AM

    I think we are probably going to have sit down with a mortgage adviser but because they work on commission, I'm not sure whether we will get a genuine impartial recommendation on what would be most suitable approach.
    Originally posted by gcdona
    Don't go for one who works on commission then.

    Choose one who offers a fee option.
    • gcdona
    • By gcdona 13th Mar 18, 1:14 PM
    • 11 Posts
    • 1 Thanks
    gcdona
    • #8
    • 13th Mar 18, 1:14 PM
    • #8
    • 13th Mar 18, 1:14 PM
    Don't go for one who works on commission then.

    Choose one who offers a fee option.
    Originally posted by zx81

    Will do, thanks
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