Extend or pay down mortgage in this climate?

[HellenaHandbasket]

There is a chance we will have a lump sum of around £65k in the next few years. Initially we had thought we would extend the house. We have a smallish 3 bed semi and 3 kids.

Two of the rooms are fairly small, so while kids could share it would be tight long term. We could give the two same sex siblings our room and take a smaller room.

The other 'issue' is the kitchen, which whilst fairly modern is teeny. As the kids get bigger I would struggle to have them in there cooking with me.

So we had thought we would extend to create another bedroom and a large kitchen diner/living area. We are quite rural with lots of outdoor space. We love the house, but long term it will be a bit of a squeeze.

Financially we have a mortgage of around £135k, which is about 50% LTV. This is affordable monthly at around 650 p/m fixed for 5 yrs.

With all the turmoil regarding Brexit etc I can't decide if we would be better off reducing the mortgage instead of extending?

Academic at the moment but I'm interested in opinions.

If you are planning to stay put and the 65k will cover the cost of extending then I would extend.

Paydown.

Interest rates in 5 years could be horrific just as your fixed rate ends.

Why would they be horrific?! If extending means you can stay there for ever I’d do that for sure. Your loan to value would improve and you’d have a much more comfortable house for your family. Mortgage isn’t too high. If £650 is affordable now maybe try to overpay by £50 or £100 a month because it makes a huge difference, your mortgage company can tell you how much and you’d be surprised.

Yes we do overpay by 50 per month at the moment and always have done the odd bit a month.

If extending means you can stay there for ever I’d do that for sure. Your loan to value would improve and you’d have a much more comfortable house for your family.

^This completely. I would definitely extend.

Whilst you are in the fixed rate you won’t be able to pay down the mortgage by the full 65k without incurring an early redemption penalty. Some lenders allow you to overpay by 10% of the outstanding balance per year without penalty.

If you do get the inheritance you could do both, you could use 50% for the extension and pay down 50% of the inheritance on the mortgage (once out of the ERC period).

My advice, at the time when this becomes a reality is to look at what other houses are on the market that don’t require building works - perhaps upgrading to a 4 bed detached, and get quotes on the building works to your current property and then weigh up which is the better for you.