Borrow for house extension?

S

Stone

Guest
Age: 30
Spouse’s/Partner's age: 31

Annual gross income from employment or profession: 77,000 + 10,000 bonus
Annual gross income of spouse: 60,000

Type of employment: Me: PAYE, Spouse: Self-employed

In general are you:
(b) saving

Rough estimate of value of home: 330000 (currently being valued for bank)
Amount outstanding on your mortgage: 277000
What interest rate are you paying? ECB + 0.85% tracker

Other borrowings – €9000 car loan, repayments 400 per month, two years remaining

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? N/A

Savings and investments: Approx €10,000 in savings accounts, saving minimum €400 per month

Do you have a pension scheme?
Self: PRSA, contribute €300 per month
Spouse: company pension, makes annual contributions

Do you own any investment or other property? No

Ages of children: None

Life insurance: €95 per month

We bought our house in 2005 for €330000, borrowed €297000. We always planned to build an extension onto the house, not a huge one but important to improve the house.

We approached our lender, BOI, last week about borrowing €40000 over 15 years. From an affordability perspective there’s no problem. We would hope to make additional payments off the loan but would like to put it over 15 years in case there are any income problems in the future.

Our only other borrowing is a €9,000 car loan. I have just paid off another car loan from savings of €9000. We now plan to put additional repayments towards the second car loan.

We have always overpaid our mortgage by about €100 per month and currently save a minimum of €400 per month.

My husband was not working last year due to an accident and just started back at work in October. We managed to continue to repay all our loans and mortgage, and get married during this time.
He is currently due to become a PAYE worker again however the company he works in is heavily dependent on construction. They are still very busy now but not sure about the future.

We also plan on starting a family later this year or early next year (obviously it may take a while or even not happen). My job is secure until 2011 however if I go on maternity leave, I will not get my salary only the state maternity benefit.

We really want to build the extension as it would improve our home hugely. We don’t plan on moving any time soon, probably not for at least 10 years.

We probably won’t be offered the full amount as a mortgage from the bank due to our LTV. A valuation was carried out on the house yesterday so waiting to hear back. We could also get a personal loan or borrow from a family member.

Would we be mad to borrow more money (approx 40,000) when my husband’s job is not secure?
Any opinions on our finances in general?

Thanks, Stone
 
In my opinion Yes you would be mad.

You have good incomes, a relatively small mortgage but still have a car loan and haven't managed to save that much give your current joint income. (That might be due to your husband being off work.....?)

We are only at the start of this mess as far as I can see with taxes going up and up and up. I would act as if you could loss one income in the future and save save save. If that doesn't happen then use the money you have saved for the extention.

As for borrowing money from a family member I personally could never do that as I like to make my own way in life and it could get messy if you get down to one income.
 
You should be saving an awful lot more than 400 per month with a joint income of nearly 150k, no children, and low amount of other borrowings.
 
id say do it if the extension is only 40k as income is good, but you'd need to try and save more to cover yourself etc for maternity leave.. if you are putting 40k onto the life of the mortgage your repayments wouldnt be that high. best of luck
 
Is 40k an accurate value for your extension. For example have you included all possible costs. We had an extension of our kitchen and you'd be surprised how much extra the cost was when you include everything from the building to the blinds on the window to the paint on the walls, and we did alot ourselves.

Also if ye plan to start a family it would be best not to have a building site around for a new born otherwise it might never get finished.
 
Hi,

Thanks for all your replies. I think we both knew it wasn't a good idea to borrow that much money in the current climate!
Our savings aren't as good as we'd like, mainly due to paying off a car loan and my husband being out of work for a year. It's taking our finances a while to recover. At least I know we can survive comfortably on my income if we need to.
The 40,000 was based on an estimate from an architect for a high-standard finished extension of 35000.
We're going to talk to a builder about looking at doing the extension in small stages over the next few years without ever having to borrow any money. In the meantime we'll keep saving. Before my husband was out of work we were saving over 1000 per month so we'll be putting away more than that from now on.

Thanks again for the dose of reality, particularly Mr. DT and Aristotle!

Stone
 
Stone said:
At least I know we can survive comfortably on my income if we need to.
Click to expand...
Would you be able to repay the extension loan also with just your salary? It's never been a cheaper time to borrow, and building costs have also come down. Better to have the extension now before the kids, and you're still young enough to wait before having them.
 
Hi Bronte,

I believe we could pay it with just my salary.
I was thinking along the same lines as you that we should borrow now and build before we have kids. Especially as our savings won't earn much interest. However, as we'd have to borrow the money for a long-ish term (10 -15 years), I'd be concerned about our ability to repay in 2 years time if I was on maternity leave and we just had my husband's salary. His salary is good but his job security in the short-term isn't that great.

My head is wrecked from going over the options!

Stone
 
Can you explain why the extension is necessary?

Is a conservatory or an extra bedroom? etc. (some people want extensions "just because").
 
Hi Superman,

Basically, our dining area gets little or no light. The only light comes from a small window in kitchen. Even during the day, we need to have a light on if we want to sit at the dining table. The kitchen also gets very little light. We want to knock through from the dining area into two back bedrooms and make one open plan living/dining/kitchen area. We would then make the existing kitchen into a bedroom and add on one bedroom - hence the extension.

It's not essential that we carry out this work - we have lived in the house for over 3 years with the current set up - but it would really make a huge difference to the house. I hate having to put on a light to read my Saturday newspaper with breakfast when it's a beautiful sunny day out! I should also say that the lack of sunshine into the house makes the kitchen/dining area very cold, we end up having to keep a radiator on in this area almost constantly during the winter.

Thanks, Stone
 
If you can afford to do it then now is a good time. I am getting some work done to my house and had a few quotes for kitchens and I'd say they are less than I third of the price I was quote 18 months ago!
 
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