House extension - save cash or pay off mortgage?
Discussion
Struggling to get my head round the best medium term way to prepare financially for a house extension in the next 2 years.
We have a decent amount of cash tucked away for a rainy day and I continue to save about 15% of my net pay each month into savings and into a S&S ISA. I am also making additional payments off the mortgage of about £100 a month.
Savings rates (after tax) are lower than our current mortgage rate (3.49%). Our current LTV is about 70%.
Extension plan is for a double-story side extension – I am speculating here but I imagine the cost will be in excess of £100k.
My thinking is it might be best to keep as much of the rainy-day fund as possible and move all my current monthly saving plan into paying off the mortgage (£499 a month max). The more we can pay off the mortgage now, the lower our LTV will be when we borrow more to extend? Essentially I want to avoid ploughing all our life-savings into the house but also want to avoid a huge hike in mortgage payments once the build is done.
What I am very inarticulately asking is, would you save as much cash as possible or pay off the mortgage in this situation?
We have a decent amount of cash tucked away for a rainy day and I continue to save about 15% of my net pay each month into savings and into a S&S ISA. I am also making additional payments off the mortgage of about £100 a month.
Savings rates (after tax) are lower than our current mortgage rate (3.49%). Our current LTV is about 70%.
Extension plan is for a double-story side extension – I am speculating here but I imagine the cost will be in excess of £100k.
My thinking is it might be best to keep as much of the rainy-day fund as possible and move all my current monthly saving plan into paying off the mortgage (£499 a month max). The more we can pay off the mortgage now, the lower our LTV will be when we borrow more to extend? Essentially I want to avoid ploughing all our life-savings into the house but also want to avoid a huge hike in mortgage payments once the build is done.
What I am very inarticulately asking is, would you save as much cash as possible or pay off the mortgage in this situation?
Life Saab Itch said:
A £100k extension? Isn't that another house? Or am air way off he mark in my estimation about how much builders will try to add on for "sundries"?
It's just guess-work but I live in South East, nice area etc. House is currently 2 bed semi-detached cottage - will be adding on about an extra 1/3rd of the size to the house (1/2 extra bedrooms, en-suite, extended kitchen with french windows etc).Will also include re-diverting drains, plus of course fittings and decoration (we could do this ourselves but as it is "potentially" our home for life we would like to get it done properly).
With current mortgage and savings interest rates, I think it is better to pay as much off your mortgage as possible at the moment. I had an offset mortgage and managed to pay my mortgage off 2 years or so ago with the help of low interest rates. The problem now is where to put any savings to get any decent returns.
Definitely better on paper to pay off your mortgage rather than save (at least via low risk savings accounts/ISAs), but I would always keep some back as cash, in case of unforeseen circumstances (losing your job, cost over-run on the extension build etc).
Paying off your mortgage is a very liberating feeling, but a bit of cash in the bank is useful.
Paying off your mortgage is a very liberating feeling, but a bit of cash in the bank is useful.
I was in the same position with a Nationwide mortgage, similar sort of cost for the extension. We overpaid tremendously, down to just £12k owing at one point, then just took the money back out whenever it came time to pay builders. No problems with trying to find a new mortgage and still kept the low standard rate.
I originally though I wanted an offset mortgage but the charges and interest rates didn't make it worthwhile against the NW mortgage we already had with the overpayment option.
I originally though I wanted an offset mortgage but the charges and interest rates didn't make it worthwhile against the NW mortgage we already had with the overpayment option.
Ean218 said:
I was in the same position with a Nationwide mortgage, similar sort of cost for the extension. We overpaid tremendously, down to just £12k owing at one point, then just took the money back out whenever it came time to pay builders. No problems with trying to find a new mortgage and still kept the low standard rate.
I originally though I wanted an offset mortgage but the charges and interest rates didn't make it worthwhile against the NW mortgage we already had with the overpayment option.
Nicely done. I originally though I wanted an offset mortgage but the charges and interest rates didn't make it worthwhile against the NW mortgage we already had with the overpayment option.
In theory this would be the plan, but assuming we start work in spring 2015 that means I can only overpay £12k (plus actual payments) which just about gets our mortgage below £200k (house currently "valued" at £320k).
I have made overpayments previously so would need to work out exactly how much we could take out before new borrowing is required, but can't imagine it will amount to much more than £25k. So potentially an extra £75k required from savings / extra borrowing.
How soon do you need to get the extension done?
I'm guessing wanting more bedrooms = planning a family?
Fully understand really adding value to a house a plot and existing house you really like plus it will be cheaper than buying one already done specifically the stamp duty agency fees etc.
As for pay off existing mortgage or save I firstly would stop paying off the existing mortgage - reason being the extra borrowing you may require will be at a higher interest rate. Hen does your current offer/deal end before you move to SVR?
I'm guessing wanting more bedrooms = planning a family?
Fully understand really adding value to a house a plot and existing house you really like plus it will be cheaper than buying one already done specifically the stamp duty agency fees etc.
As for pay off existing mortgage or save I firstly would stop paying off the existing mortgage - reason being the extra borrowing you may require will be at a higher interest rate. Hen does your current offer/deal end before you move to SVR?
Welshbeef said:
How soon do you need to get the extension done?
I'm guessing wanting more bedrooms = planning a family?
Fully understand really adding value to a house a plot and existing house you really like plus it will be cheaper than buying one already done specifically the stamp duty agency fees etc.
As for pay off existing mortgage or save I firstly would stop paying off the existing mortgage - reason being the extra borrowing you may require will be at a higher interest rate. Hen does your current offer/deal end before you move to SVR?
Hi WB, thanks for posting.I'm guessing wanting more bedrooms = planning a family?
Fully understand really adding value to a house a plot and existing house you really like plus it will be cheaper than buying one already done specifically the stamp duty agency fees etc.
As for pay off existing mortgage or save I firstly would stop paying off the existing mortgage - reason being the extra borrowing you may require will be at a higher interest rate. Hen does your current offer/deal end before you move to SVR?
You are almost right - the family is already here! We have 20 month twins (the original plan being to have one, extend, have another...) and only two bedrooms so eventually at least another bedroom is a must, plus extra space for all the child-related crap.
We have considered moving but we love this house so much and, as you say, the transaction fees plus stamp make it a no go at present. If it were not for the fact this house has no garage (and no space for one really) it would be perfect!
Current deal runs out in 2015 so really won't see any benefit of the current rate we get when it comes time to extend.
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