December 7, 2022

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Delighting home maniacs

Should we overpay the mortgage and borrow money for house renovations? | Mortgages

Q We currently have a mortgage of £122,000 and need to complete some home renovations costing £25,000. We can afford to save about £500 a month to put towards the house renovations but it would take us years to save. Would it be worth overpaying the mortgage and then borrowing the amount we need? Our fixed rate ends in January 2024.
AW

A You’ve lost me. I don’t understand why you would overpay your mortgage only to borrow it back at some point in the future. I’m also a little worried that because you have a fixed-rate deal there will be a limit – typically 10% of the outstanding loan – on how much you can overpay. In your case that means you could be limited to overpaying £12,200 this year but as that’s a bit more than twice the £500 a month you have going spare, you are unlikely to breach your lender’s limits. But as I said before, why would you want to overpay unless it’s because your current mortgage represents the maximum your lender is prepared to lend you.

It is also unclear when you are planning to have the renovations done. If it’s as soon as possible, it might be an idea to ask your lender if it is prepared to increase your mortgage by the £25,000 you need to pay for the work. If you can wait a while – which in the current mortgage climate I suggest is the way to go – you could consider waiting until your fixed rate comes to an end and including an extra £25,000 when you remortgage to a new deal.

The alternative is to have a look at the personal loans section at Moneyfacts.co.uk where you can enter the amount you want to borrow and for how long. For a £25,000 loan over five years (60 months) you can expect to pay back a fixed amount of between £450 and £500 a month.

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