Changing Mortgages, Releasing Equity

[Hells_Belle]

I've some very basic questions I hope some kind soul will help answer. I've only ever bought the one house and suspect I didn't learn as much in the process as I should have because I had an excellent broker who made everything very easy.

We bought our house for $220,000 two years ago. We put down €100K in cash and got a mortgage as follows:

Loan Amount: €120k
Interest Rate: 6.45% variable
Term: 40 years

This was a sub-prime mortgage because I am self-employed and did not yet have two years of accounts. I was aware at the time the interest rate was high, but we didn't have a lot of choice at the time. The plan was always to wait until I did have two years of accounts and change lenders, presumably at a lower rate.

We got a 40 year mortgage to keep payments down in anticipation of becoming a one-income family. We anticipate paying it off completely before year 30 with a lump-sum payment at some (distant) future point. We have had no issues making the payments.

While the value of the house has dropped with the market as it is, we also undertook significant renovations and think we bought back some of that price drop with upgrades like heating and hot water and other such luxuries. I'm not really sure, but still: we have significant equity in our home.

I will shortly have the magic two years of accounts to hand and would like to switch to a lender who will give us a better rate. We are also looking at putting an extension on the house, which would require about €30K.

I asked, and our current lender is making no new loans, full stop.

My questions are:

1/ Is it feasible that I would be able to switch my mortgage in the current climate or am I stuck at my current lender?
2/ Will a new lender typically release funds to enable the extension?
3/ What is it I am actually looking to do - refinance? Re-mortgage? Top up?
4/ Is my 40 year term a stumbling block? We are 38 years old and two years in.

I'm not really sure how feasible this all is, and would appreciate advice.

Thank you!

 

[fizzelina]

Hi,
we also undertook significant renovations and think we bought back some of that price drop with upgrades like heating and hot water and other such luxuries - heating and hot water are the norm in most houses to be honest and not considered luxuries warranting extra property price by buyers, they would expect these.
You don't say what the value of the house is now, judging by similar houses on sale in the area?
It would be hard to move if you are in negative equity (ie owe more mortgage than the house is valued at now) and even if not in neg equity you will find it hard - especially being self-employed. You could go back to your broker and ask him his opinion?
The banks will look at equity in the house, repayment ability, secure employment, loan to value ratio.
You are looking to move your mortgage and also get a top up mortgage for 30k.

 

[Hells_Belle]

Thanks! What I meant was, when we bought the house at 220K, it was purchased at that value with no heat, no hot water, etc. We spent a good deal of money investing in basic infrastructure and generally insulating, pouring concrete, and modernising which presumably would have increased the value of the house had the market not crashed.

Current value: maybe €190K?

You are looking to move your mortgage and also get a top up mortgage for 30k.

Thanks so much, that's just what I wanted to know. I guess I will chat to my broker but not expect to be able to move mortgages any time soon. Luckily the extension isn't pressing.

It is frustrating though; we were so careful working out payments we could comfortably afford and putting all that money down. I'd have been better off getting a bigger mortgage and holding onto the cash!

On the other hand, we keep reminding ourselves that if we'd not bought when we did, we'd very likely not qualify at all now and still be renting. This is better even if its not perfect.

Thank you, I appreciate your time and your answers.