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Mortgage Renovations

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  • 25-05-2010 2:25pm
    #1
    macker999
    Closed Accounts Posts: 6 ✭


    Hi

    I am applying for a mortgage but the house we are looking at will need 30,000 worth of renovations. Are there any mortgage lenders out there that will add the cost of the renovations to the house price mortgage. I have been talking to one mortgage lender and they said to apply for a mortgage and a home loan seperately but there is no guarantee that I would get the home loan.


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    #2
    TwoShedsJackson
    Closed Accounts Posts: 9,438 ✭✭✭TwoShedsJackson


    Back in the 'boom' you could probably have done this no problem, these days forget about it.


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    #3
    macker999
    Closed Accounts Posts: 6 ✭macker999


    Hopefully there is somebody out there that will do it. We have mortgage approval for a higher sum than the cost of the property and renovations. Would they take this into account?


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    #4
    TwoShedsJackson
    Closed Accounts Posts: 9,438 ✭✭✭TwoShedsJackson


    What is it about houses that causes people to not be able to think about the finances involved?

    Look at it from the bank's perspective: they won't give you 30k over and above the value of the house because houses are currently going down in value and seem likely to continue to do so for the forseeable future. When prices eventually start to recover, it will likely be very slowly.

    If they gave you the extra, that's just extra money they'll be stuck for were you to default on the mortgage, and with interest rates rising, jobs being lost, taxes going up etc. it's unacceptable risk for them.

    From your own point of view: if you were somehow given that 30k, it'll cost you 60k over the life of the mortgage to repay it. This is appalling value for a loan. If you are approved for a mortgage of more than the cost of the house plus renovations, you should reasonably be able to get a seperate home loan which would not cost you near as much. This assumes good economic times, something we definitely do not have right now.

    If you've been reading the news the last couple of years, you know the state the banks here are in, they're not going to take ANY risks, and giving someone 30k on top of their mortgage to fix up a house is a risk, no matter whether you think you're good for it or not.

    There are thousands of houses out there that don't need to be renovated, are none of them suitable? My best advice to you if you're buying: don't get emotionally attached to a house and make unwise financial decisions because of it.


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    #5
    olaola
    Registered Users Posts: 4,139 ✭✭✭olaola


    IMO, it's the reason why do-er uppers won't sell. If you have a house that is in any way decent condion, it's selling very quickly.


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    #6
    macker999
    Closed Accounts Posts: 6 ✭macker999


    Thanks folks for the advice.

    I would prefere to buy a house without having to renovate or do any work on it but houses in that area are 100k more expensive if done up.


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    #7
    ZYX
    Registered Users Posts: 882 ✭✭✭ZYX


    TwoShedsJackson wrote: »
    From your own point of view: if you were somehow given that 30k, it'll cost you 60k over the life of the mortgage to repay it. This is appalling value for a loan.

    .

    Just on this point. A mortgage is probably the cheapest loan you will ever get, and if at all possible it makes sense to add a loan to your mortgage. Given a choice of a loan with repayments of 4% or 10% the sensible thing to do is pick 4%.


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    #8
    coffee_cake
    Registered Users Posts: 81,310 CMod ✭✭✭✭coffee_cake


    ZYX wrote: »
    Just on this point. A mortgage is probably the cheapest loan you will ever get, and if at all possible it makes sense to add a loan to your mortgage. Given a choice of a loan with repayments of 4% or 10% the sensible thing to do is pick 4%.

    Not if you're looking at a long term mortgage, it works out a lot worse than just getting a separate shorter term loan. Current 5 year 30k loan is 37k judging by an AIB rate. Stick that 30k onto a 30 year mortgage and you're paying minimum 46k (and we're on low interest at the moment). Ofc I don't know the OP's preferred payback time but it's not just interest rates you need to consider.
    I think the main question for the OP is affordability of the repayments (lower monthly for just a mortgage and no loan) vs total amount repaid overall (higher for a mortgage and no loan).


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    #9
    TwoShedsJackson
    Closed Accounts Posts: 9,438 ✭✭✭TwoShedsJackson


    ZYX wrote: »
    Just on this point. A mortgage is probably the cheapest loan you will ever get, and if at all possible it makes sense to add a loan to your mortgage. Given a choice of a loan with repayments of 4% or 10% the sensible thing to do is pick 4%.

    It would be, were it not for the enormous repayment period, as pointed out by the next poster.


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    #10
    ZYX
    Registered Users Posts: 882 ✭✭✭ZYX


    TwoShedsJackson wrote: »
    It would be, were it not for the enormous repayment period, as pointed out by the next poster.

    Well obviously you pay it off earlier. I didn't think I needed to say that as it was so obvious. However even over a longer period it can still make sense when you take inflation into account.


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    #11
    TwoShedsJackson
    Closed Accounts Posts: 9,438 ✭✭✭TwoShedsJackson


    ZYX wrote: »
    Well obviously you pay it off earlier. I didn't think I needed to say that as it was so obvious. However even over a longer period it can still make sense when you take inflation into account.

    That really isn't that obvious. Yes if you can pay it off earlier it's great to get the money at 5% or whatever compared to a personal loan, but how many people can do that?

    The fact the OP wants to tack it onto his mortgage implies he hasn't got it now and doesn't have any hope of having it any time soon, hence he won't be paying it off early.


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    #12
    antoinolachtnai
    Registered Users Posts: 9,787 ✭✭✭antoinolachtnai


    It is prudent to borrow for major renovations over a long period because you will have the benefit of the improvements for a long time.

    On the other hand, it would not be prudent to buy a car or go on holiday, say, with money you plan to pay back over 20 years.

    The bank is going to be really slow to take on an investment like this though. Maybe if you have special knowledge in building/construction yourself? If you know what your doing, there is really good value to be had in getting building work done at the moment (but only if you really know what you are doing.)

    Interest is basically rent on money. You are renting money instead of renting a house. Considering whether interest is a waste is a bit like asking whether rent is dead money.


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