Wwyd about extending house/mortgage?

[EddieVeddersfoxymop]

We are thinking about building a conservatory onto our house. Cost will be in the region of £25k......we live in an expensive area to build! We have approx £100k equity in the house and would look to release some of this to fund the build.

I am a sahm and our plan looks like this. We have 18 years remaining on our mortgage. No plans to move as dd goes to a good school, we have friends and family in the area. We could add on the borrowing required and our payments would increase by about £50 per month, which is the amount we currently overpay. Or, We could increase the remaining term of the mortgage from 18 to 22 years and keep the payments the same, which would allow us to continue to overpay at the current level. We would then use dh pay rise next year to increase our overpayment. Thinking of a 3/5 year fixed rate, knowing that my dd will be half way through primary school and I would either be back in employment or increasing the return from my own wee business that I run presently.

Wwyd? We are comfortable with overpaying....I feel more secure doing that as it covers any future rate increases, iykwim. Have I forgotten anything? Dh earns a good wage, we have plenty insurance in place to cover the increase in debt.

I feel that if we moved, to buy what we would like would increase our borrowing by 30/40k anyway, and then you'd add on stamp duty on top of that. By increasing the living space in our current home, we avoid all the hassle and expense of moving too........

Any thoughts/ suggestions would be great!

Most fixed rates limit the amount you could overpay by each month (where I worked you could overpay 10% per year) so that may be something to take into consideration. An offset mortgage may be an option for you if you are happy to have a variable rate, can overpay as much as you want and and savings would save you interest on the mortgage which may be beneficial in future.

WIWD... and have done on several occasions in the past, is add the home improvement money to the mortgage at the same time as getting an attractive 3-5 year fixed deal where I can overpay something without penalty if I can afford it. The lender I have my current fixed deal with allows me to pay back 10% of the balance at the start of the year without penalty so that's what I do. Save up my overpayments in a Cash ISA throughout the year and send the lender a nice fat cheque (sobbing quietly as it goes in the post-box you understand) every January. I then keep the monthly payments at the same level but the end date of the mortgage comes forward a year each time.

I would contact the bank and also get a realistic valuation and then decide. My friend bought a house in a desirable area with a view to extending into the loft to accommodate students to pay for it. They initially said yes in principle to a loan added to mortgage to cover it (she has v good job) They have now said no!

This isn't the same thing noddyholder. There's £100k equity in the house and the work required costs £25k. If the house was worth £300,000 that means they'd be borrowing 75% of the value instead of 66%. It's only going to be a problem for the OP if borrowing an extra £25k takes the total LTV to beyond 90%... which is probably what stymied your friend.

No I know but how do you know there is 100k in it without a valuation. This is what happened to friend she thought she had enough equity but didn't according to new regs

We did exactly this. We increased the value of the loan from the mortgage company and reduced our equity. Our equity was substantially more than what it was when we bought the house 6 yrs ago and used the money to pay for the extension. The extension cost £50k, but added £200k. Makes up for the pain of the builders on site for 10 weeks. We did not increase the term. The loan, as I understand it is set up so you are paying off the interest first, then the original amount last, not an equal amount each month. Therefore the bigger the overpayment, or the shorter the term, the better imo. Good luck

Thanks everyone, sorry for not returning to the thread sooner....ill child and all that jazz. We've been to see our financial planner who agrees there is 100k equity in the house. We would need to increase the term of the mortgage to keep the payments around what we pay at the moment, but as we plan on staying here a while that doesn't really worry me too much. The value of the house would increase with the extension being added too, so it all looks ok.

If we were to move, we would have to start again with a 25 year mortgage( we are young enough to do that and have the house cleared off well before retirement) and would have the costs of selling/purchase/stamp duty/removals etc to worry about finding, so staying put and extending seems a good plan.

We are committed to overpaying on the mortgage though, which we do at present, but aim to increase that overpayment by 100% if not more by the time the new mortgage deal would end. That should see us comfortably cover any future rate increases that might happen while we are fixed in.

Just feels a little scary to borrow that much money against the house, extend the term and then actually have the work done! I would say though, that we have adequate insurance for life/critical illness/redundancy etc and also my DH has income protection cover which gives us 60%of his monthly take home pay for two years should anything happen.

I hate making financial decisions....in another life I was a bank manager so you'd think I'd be used to this but it's easier to make decisions with someone else's money!!!!