Remortgage now and extend loan before end of term

[Gittins Gal]

Yes, I know there's a similar thread going on - in fact it prompted me to ask this question.

I've come to the end of my fixed deal and am on Santander's SVR. Now, we have plans for an extension and we we're going to remortgage and raise the funds to do the work. Unfortunately, we can't go ahead right away as a tree needs to come out and we have to wait a year before work can commence.

So, my question is does it make sense to get into a fixed rate deal now (2 years seems to be the minimum) and hope that they'll let us top up the loan when we need to pay for the work?

Or should we stay on the SVR for now?

My worry is that we go for a fixed deal now and they don't let us borrow more when we need to. We don't even have an exact costing yet - just ballpark figures though I'm sure the loan to value ratio will remain on target.

[northernladuk]

Can you borrow enough for the extension now or are you going have to use the value of the house with the extension to secure the funding you need?

[Gittins Gal]

Can you borrow enough for the extension now or are you going have to use the value of the house with the extension to secure the funding you need?

No, we could borrow enough now but I'd worry about under/over borrowing because I'm not confident in the ballpark figure we've been given by the architect.

[v8gaz]

A decent architect will be able to give you a ballpark within 10% either way, as long as you stick to the design. Mine went over budget because we went a bit mental on the extras and finishings. Wine cellar? Great idea. Concrete pretendy-stone sir? Nope, only sandstone to match the original house will do. etc etc. Mine you, we do now have a proper contractor's extension

[Gittins Gal]

A decent architect will be able to give you a ballpark within 10% either way, as long as you stick to the design. Mine went over budget because we went a bit mental on the extras and finishings. Wine cellar? Great idea. Concrete pretendy-stone sir? Nope, only sandstone to match the original house will do. etc etc. Mine you, we do now have a proper contractor's extension

Hmmm... inneresting.

So maybe now is the time to remortgage and just make sure we have enough cash to cover a 10% discrepancy.

[v8gaz]

Hmmm... inneresting.

So maybe now is the time to remortgage and just make sure we have enough cash to cover a 10% discrepancy.

I'd go for a 50% discrepancy - that would just about cover mine. Almost.

[Gittins Gal]

I'd go for a 50% discrepancy - that would just about cover mine. Almost.

And therein lies my problem too

[v8gaz]

If I was doing it again? I would borrow a little more, and prevent my wife (oh, ok, and me) from researching anything to do with kitchens, garages, buildings during the course of the work. I would also have move the string back into it's original position after the mrs decided that she wanted an extra couple of feet of my garage space as her kitchen...

And cost all the fittings, and put aside some more. You may decide, like us, that the 3 grand wood burner was a must, after budgeting 500 quid.

[Power Mortgages Ltd]

So, my question is does it make sense to get into a fixed rate deal now (2 years seems to be the minimum) and hope that they'll let us top up the loan when we need to pay for the work?

Or should we stay on the SVR for now?.

There are pro's and con's with both options.

If you are on the Santander SVR of 4.74% then depending on the loan to value you sit at currently which I assume is not too high if you have the capacity to take equity out the property, you could probably secure a much better rate now. A lot will hinge on what happens with interest rates but I wouldn't wager a lot of money on rates being as low as they are now, in a year's time so if you sit on the SVR you could end up, with hindsight, thinking you should have secured that fixed rate a year ago.

The problem with most lenders when it comes to further advances is that they know you are normally tied into your current mortgage and subject to an early repayment charge on that part of the loan so therefore you're unlikely to remortgage elsewhere and pay that charge to raise some additional money as it normally doesn't work out beneficial even if the rate is slightly better elsewhere. Therefore, rates for further advances tend to be higher. That may be ok if the amount you are raising in comparison to your overall mortgage is not that much (for example you need an additional £20k and your current mortgage is £150k) but if you current mortgage is £50k and you need an additional £50k you may find that securing a new fixed rate now on the current part of the mortgage means that you will be stuck being offered a much higher rate on the further advance later down the line.

Every lender varies with the rates they offer for further advances so that could be a factor you consider when looking for a new rate now, to ask what rates they currently charge for further advances and if there are any restrictions like maximum loan to value. To give you an example and as I have their product guide open in front of me at the moment, the Halifax rates for further advances up to a maximum of 80% of the property value are 5.89% for loans of up to £50,000 or 3.99% for loans above £50,000, this is regardless of the total loan to value so even if your total loan including the new amount was going to be less than 60% of the property value, you could still end up paying 5.89% if you didn't need a £50,000 further advance.

You mention you are not sure about borrowing the money now as you do not wish to over borrow or under borrow. Whilst you would potentially have to pay interest on the higher amount for the year before you started to use it which would be a disadvantage, I would advise erring on the side of caution and borrowing more than not enough if you do decide to borrow it all now. This way you can always make an overpayment to repay any surplus funds you didn't need as most lenders will allow 10% overpayments per annum without incurring any early repayment charges. On top of that, you could always pop the money in an account which will earn you interest to offset the cost of paying the interest for the year you do not need to use the funds. Better still, if you have an offset mortgage you can put the funds in there until you are ready to use them.

Hope that helps?

[v8gaz]

top tip - get your builder to allow you to pay for the materials on your airmiles credit card. We're all off to the USA on upper class from the miles earned building Castle V8