Pay off mortgage then take out another

[edthedead]

We will shortly be receiving enough to pay off our mortgage, however, we want to build an extension in the next few years. The cost of the extention is going to be almost exactly the same as our remaining mortgage.

Is there any reason not to pay the mortgage off, enough some time mortgage free, then get a new mortgage to build the extension? As far as I see the advantages are no mortgage interest and probably getting a lower rate on the "new" mortgage.

[roadsmash]

edthedead said:

We will shortly be receiving enough to pay off our mortgage, however, we want to build an extension in the next few years. The cost of the extention is going to be almost exactly the same as our remaining mortgage.

Is there any reason not to pay the mortgage off, enough some time mortgage free, then get a new mortgage to build the extension? As far as I see the advantages are no mortgage interest and probably getting a lower rate on the "new" mortgage.

Eh? Why wouldn’t you just use the cash to pay for the extension and then remortgage?

[RSTurboPaul]

roadsmash said:

edthedead said:

We will shortly be receiving enough to pay off our mortgage, however, we want to build an extension in the next few years. The cost of the extention is going to be almost exactly the same as our remaining mortgage.

Is there any reason not to pay the mortgage off, enough some time mortgage free, then get a new mortgage to build the extension? As far as I see the advantages are no mortgage interest and probably getting a lower rate on the "new" mortgage.

Eh? Why wouldn’t you just use the cash to pay for the extension and then remortgage?

Higher house value after extension would mean a lower percentage borrowed, therefore likely lower interest rates - wouldn't it??

[roadsmash]

RSTurboPaul said:

Higher house value after extension would mean a lower percentage borrowed, therefore likely lower interest rates - wouldn't it??

Why would you pay the mortgage off just to take out another? Just get the property valued and then remortgage based on the new value!

[edthedead]

RSTurboPaul said:

roadsmash said:

edthedead said:

We will shortly be receiving enough to pay off our mortgage, however, we want to build an extension in the next few years. The cost of the extention is going to be almost exactly the same as our remaining mortgage.

Is there any reason not to pay the mortgage off, enough some time mortgage free, then get a new mortgage to build the extension? As far as I see the advantages are no mortgage interest and probably getting a lower rate on the "new" mortgage.

Eh? Why wouldn’t you just use the cash to pay for the extension and then remortgage?

Higher house value after extension would mean a lower percentage borrowed, therefore likely lower interest rates - wouldn't it??

My thinking is that, firstly it might take over a year to get plans drawn up, get planning permission, find a builder etc, during which I would be paying interest on the mortgage while earning next to nothing on the money sat in the bank. Our current discount rate ends next year, most likely in the middle of while the extention is being built which may make remortgaging at that time difficult.
I am thinking we will be able to get a mortgage approved and then draw it down in chunks as we need it during the build.
Current interest rates on new mortgage are lower than our current fixed rate.

[RSTurboPaul]

How safe is your job in the current environment? lol

Do you have enough cash without the extension money to survive if needed?

[edthedead]

RSTurboPaul said:

How safe is your job in the current environment? lol

Do you have enough cash without the extension money to survive if needed?

Very safe thankfully, and yes.

[Pit Pony]

We paid off our original 45k mortgage taken out in 1998, in 2013.
In 2015, we took out a BTL mortgage for £88k
A friend who is a "financial advisor" asked why we did not remortgage our house and buy the BTL with the cash? Because the mortgage rate was 0.5% lower on a residential mortgage. And it was easier to apply. There was a subtle worry, in that our joint incomes appeared to be too low, but that's because I'd artificially capped it for a few years with big pension payments, and retained earnings in my LTD company, but they wrote to my accountant who confirmed what we could have taken had we wished.
In 2019, we took out a residential mortgage on a 2nd Home of £132k. There was no issues with obtaining the mortgage. Said we could borrow up to £245k. Like fk.
There was no problem taking out either mortgages, provided your income stays at the right level.

[strain]

Speak to you're mortgage provider, they may offer a savings account beside your mortgage, effectively you put the money in to cover the mortgage, they take no interest but the money is still there to use when required.

A new mortgage isn't always guarantee'd!

[edthedead]

strain said:

Speak to you're mortgage provider, they may offer a savings account beside your mortgage, effectively you put the money in to cover the mortgage, they take no interest but the money is still there to use when required.

A new mortgage isn't always guarantee'd!

Thanks for the suggestion, I have just checked and Halifax (our mortgage provider) do not offer an offset mortgage.

[gangzoom]

edthedead said:

I am thinking we will be able to get a mortgage approved and then draw it down in chunks as we need it during the build.

Why don't you just leave say 5% of the existing mortgage unpaid and than when needed just ask for additional borrowing- which is what we are doing.

I'm with Barclays, and when I called them about checks for additional borrowing apparently all I need to provide them is last 2 months of bank statement and they aim to release funds within 2-4 weeks of initial application. You do need to have one meeting with a mortgage advisor but that's it, much less painful than a full mortgage application.

They will happily lend up to 80% LTV with no issues.

Edited by gangzoom on Monday 1st March 07:01

[Enut]

edthedead said:

My thinking is that, firstly it might take over a year to get plans drawn up, get planning permission, find a builder etc, during which I would be paying interest on the mortgage while earning next to nothing on the money sat in the bank. Our current discount rate ends next year, most likely in the middle of while the extention is being built which may make remortgaging at that time difficult.
I am thinking we will be able to get a mortgage approved and then draw it down in chunks as we need it during the build.
Current interest rates on new mortgage are lower than our current fixed rate.

'Current interest rates on new mortgage are lower than our current fixed rate.'

The first thing to do is check if you have redemption penalties on the existing fixed rate, most do. So you would have to pay those as well as the outstanding balance. That might alter the equation a little.

[edthedead]

Enut said:

edthedead said:

My thinking is that, firstly it might take over a year to get plans drawn up, get planning permission, find a builder etc, during which I would be paying interest on the mortgage while earning next to nothing on the money sat in the bank. Our current discount rate ends next year, most likely in the middle of while the extention is being built which may make remortgaging at that time difficult.
I am thinking we will be able to get a mortgage approved and then draw it down in chunks as we need it during the build.
Current interest rates on new mortgage are lower than our current fixed rate.

'Current interest rates on new mortgage are lower than our current fixed rate.'

The first thing to do is check if you have redemption penalties on the existing fixed rate, most do. So you would have to pay those as well as the outstanding balance. That might alter the equation a little.

Yes, there is a redemption penalty, which is pretty much equal to the interest from now until the end of the discount period. I am now thinking it would be better to make the maximum over payment (10% of the balance) and then keep the mortgage running... it's making my head spin a bit 😆