DH and I disagreeing about borrowing more on mortgage

[MortgageConfusion]

Current situation - we have a mortgage on our flat. Our equity is quite high but not huge - around 35%-40% of the total value. We are in a situation where finances are very very tight but only until next summer, when I will be starting a relatively well-paid job. Until then I am a student. We have very high childcare costs at the moment (will ease after Christmas) but do not qualify for help from student bursaries etc.

We are looking at borrowing slightly more on the mortgage (around 6k). We would use this partly to do some work that needs doing to the flat (bathroom needs retiling, new internal doors are needed plus a few other jobs which will swallow at least 2k, but will probably be worth it when we sell), partly to pay off our current overdraft (1.5k), and the rest to give us a bit of a financial cushion/ emergency fund until this time next year when I will be working (and we'll also probably be moving). It would also actually reduce our monthly repayments as there are better deals available now, and as cash-flow is our main problem that would be great.

The mortgage company (our own and others we've asked about remortgaging with) have wanted, understandably, to know what we would do with the money. As they will not lend for regular bills, including childcare costs, even when they are short-term and for a definable reason - i.e. extra childcare in the lead-up to my finals - we have said we want to use it for home-improvements, which is obviously only partly true.

DH is unhappy with this, as he says it is lying/ fraud and we should look into getting a personal loan instead. I believe he's probably technically right, but as the bank will be getting their money back regardless, and it will ease our situation hugely, I can't get too worked up about it. I also don't see any difference practically between borrowing 6k with the intention of spending 2k on home improvements and using the other 4k for useful things, and borrowing 6k for home improvements with the intention of spending it all, then only ending up spending 2k because we moved before the work could be done/ didn't get a quote we were happy with/ life got in the way which I'm sure happens all the time. It is just spending some of the equity in the flat, which isn't ideal but needs must - it won't hugely affect our ability to move next year.

Who is right?

I'm with your DH, I wouldn't lie to the mortgage company nor would I be borrowing money to fund being a student or do non urgent jobs around the house.

He is being ridiculous. It’s just a tick box.

Tell the hank it’s for renovations. Say a new bathroom.

There will be no questions asked!!

The bank not the hank

Why do the renovations now? They don't sound urgent and money is really tight. You could get tiling and doors sorted in a weekend before you move, if you really think it would make a difference to selling.

If remortgaging would reduce your payment, why not just do that without increasing your debt burden even more? How big a gap in your finances would that leave?

Much, much cheaper to borrow money on a mortgage from equity than a loan or overdraft. Your loan to value ratio is also fairly low, so you should be able to get a good deal and you are in fact spending some on the house.

We have just done this and said it was for home improvements. Didn’t bother me at all. We borrowed £20k and used slightly more than half of it for a new patio and new bathroom and the rest we used for all kinds of stuff. For us it makes no difference at all at the monthly payment is tiny and we have lots of equity should we ever need it.

It is just a tick box for the bank. If it weren't, then they would ask for proof!

Just say home improvements and they are happy.

I have just done this. It is a way of getting some equity out without selling. I wish we had asked for more actually...

Why do the renovations now?

The bathroom is in a right state. There is no tiling behind the loo (in fact there is a massive hole in the wall into some boxing) and the painted wall keeps getting wet from overflow from the bath and DS1's less than fantastic aim

Much, much cheaper to borrow money on a mortgage from equity than a loan or overdraft

This is only true if you pay the money back quickly. CBA to work it out, but you would probably pay more interest borrowing £6k for 25 years at 2.5% pa on a mortgage than for 3 years at 10% pa as a personal loan.

I would probably borrow the money, say it is for home improvements and have an explanation of what type ready, if they ask, but then commit to paying back the £6k within a year or two of your new job next year, so you're not still paying for these things for decades to come.

However, have you asked your lender if they will actually lend a relatively small amount as additional mortgage borrowing? Sometimes they have £10-20k minimums, although it could be a flexible product where you are allowed to repay the excess straight away.

What are the fees/cost of remortgaging especially is you intend to sell/move/obtain another mortgage in a year’s time on another property?

Is your job next year certain or is a hope?

Early next summer is post Brexit - maybe not the ideal time to sell.

fairylea how on earth can an extra 20k be 'a tiny monthly payment'? And you may have 'plenty of equity' at the moment, but that's assuming the housing market stays very high, which is a very big if.

We've done this twice. The first time we borrowed 12k on the mortgage for home improvements (genuine) but second time we remortgage for childcare costs. We went to a broker in the end as he found us a company that would lend without being too fussy on what the money was form I think he fibbed and told them it was for debt consolidation so if brokers are doing it I don't see why you can't.

It has given us a bit of room to breathe for a year or two which has made all the difference to our lives.

Is your job next year certain or is a hope?

It’s certain as long as I don’t fail my course. Or, I suppose, accidentally get pregnant in the meantime, but that would just mean delaying rather than not getting it. Tbh to avoid pointless vagueness - I’m a medical student. So yes, job is virtually guaranteed.

OP, I think this is a very good solution to a stressful situation.

Our monthly payment for the £20k is £60 a month which is a small amount to us (borrowed over 25 years). We are both only children and set to inherit within that time which will pay off any remainder of the mortgage, even if the housing market declines. Everyone’s situation is different. For us it was and is fine to do what we did.

fairylea your repayment is small as it's over the full 25 years, lots of people would need to repay over a much shorter period. By the way counting on an inheritance is also not a good idea.

I wouldn't bother and not borrow anything and try to cover up the bathroom hole even on selling as a lot of repairs for a sale don't get you your money back and aren't worth it. Just stick it out for now without any new borrowings or spending. perhaps try a second weekend job?

For the sake of a few tiles (which, frankly, you could watch a You Tube videa and do yourself) I really don't think you should borrow more. I'd be a LOT more frugal and pay down your overdraft, and buy just what you need to do a DIY repair nearer the time. Cost will be minimal and you'll save loads.