OK, not strictly on topic, but something that I'm sure more than a few
people here have dealt with.
I'm planning some fairly major work on my house, and I'm trying to work out
the best way to finance it. As I see it, I have two options.
1) Take out a loan/mortgage against the equity in the house.
2) Take out a personal loan.
I'm lucky in that the equity I have is substantially more than the amount
I'm planning on spending, and my current mortgage plus a possible second one
would still come in less than the maximum I could get on a new mortgage. My
bank has also offered a loan at a very good rate that would cover the amount
I'm planning on spending. Now obviously a mortgage would offer a better
rate, but the bank loan would be fixed (which I like).
Anyway, which option do most people prefer/makes better sense? Any big
reason not to do it a particular way?
I suppose the other obvious ones are to think about:
Term. An additional mortgage does not have to run for the same
period as the main one necessarily. If the amount is relatively
small compared with the overall, then rather than going for 20 years
or more, then 5-10 will mean that although the monthly fee is higher,
the total amount of interest paid will be considerably less.
Repayment vehicle. If you go for an interest only mortgage then
consider this one carefully, research and take advice. Depending on
your situation, ISAs, index tracker funds etc. can be useful things to
consider. Don't forget tax implications.
To email, substitute .nospam with .gl
You can still fix the loan with a mortgage as well.
The best option IMO is the one which is cheapest, which will probably be
a re-mortagage at least in terms of actual interest rate and repayments.
For smaller amounts say <5000 then a personal loan may be more sensible
(the upfront costs are more in proportion with a mortgage of course).
Though you also have to consider how long the loan term will be - of
course with a personal loan you will normally pay it back over say 5
years. If you pay back the same over say 25 years on a mortgage then the
overall cost may well be more, but of course you don't have to pay it
back over such a long term. If you are likely to sell then of course you
will be paying it back early anyway.
Sit down a with a calculator and compare the actual costs over the
likely term of the various loans. Interest rate is just one aspect. And
with mortgages pay attention to things like redemption penalties.
But there are good deals around, and you can still fix a mortgage. You
should be able to get a fix for 5 years for say 4.5 - 5% bit less for a
We re-mortgaged last year for this purpose. We got a discounted rate of
about 3.5% for 2 years not the lowest rate, but with the lowest costs
for us in the medium term (up to 5 years), with no redemption penalties
at all and the upfront costs was about GBP 300. We may have to sell up
by then depending on my wife's work so didn't want to tie in for a long
term. Either way, a move within 5 years is most likely anyway.
The are various site to compare mortgages.
I found one of the best was the Charcolonline one.
You have to figure in how many years you have left on your mortgage.
If you can get a loan at 6.9%, your 4% re-mortgage may look more tempting,
unless you have 20 years left on it.
Re-mortgage with a Virgin One account. You set the upper borrowing
limit (within the value of the house). Pay for things as and when you
need them (rather than borrowing a lump sum and paying interest on the
whole amount before you've actually spent it all.
Alternatively put everything on the credit card then transfer to one
which gives 6 months interest free for balance transfers. Then take
out the loan to pay it off if you haven't already (or transfer to
another card if they'll let you).
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