How to fund home improvements

M

Monte2014

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47
Age: 48
Spouse’s/Partner's age: 50

Annual gross income from employment: €33K (Self Employed, LTD company)
Annual gross income of spouse: €67K

Type of employment: me private sector (self employed, ltd company, providing QS/project management services), spouse private sector (full time, permanent)

Saving approx. €1,200 per month

Rough estimate of value of home: 550K
Amount outstanding on your mortgage: 124K over next 15 years.
What interest rate are you paying? 2.9% (4-year fixed rate, due to expire in Jan 2026. About 15 years left on mortgage.)

Other borrowings – car loans/personal loans etc – my car loan (€480PM). wife car loan (€520PM). Farm machinery loans of €1k/mth with 2 years remaining.

Do you pay off your full credit card balance each month I rarely use it and always pay it off.
If not, what is the balance on your credit card? €0.

Savings and investments:

Do you have a pension scheme? Yes I have a self administered pension. Current value is €468k. I controbute circa €25k/annum from the company. My wife has a company pension. Current value is €126k and she makes AVC’s of 12% on top of her 4% contributions and employers 8% contributions.


Do you own any investment or other property? Yes, I own a 120 cacre farm, which I inherited last year and is currently on a 7 year lease. Nett annual income (after PRSI amd USC) is €40k. We also have a portfolio of shares with Davy (execution only). Current value is €100k. Also, I have €70k funds in my company but I cannot use this as it is with the company.

Ages of children: 13,15,17

Life insurance: We both have 3 times salary through work.

What specific question do you have or what issues are of concern to you?

We are planning to do some work to our house, starting early 2025. Costs will be in the region of €30k. Works are mainly €10k inrerior for soft furnishings and €20k exterior for landscaping, fromt entrance etc. Based on the above, which option should I choose to fund the works?

  • Should I get a home improvement loan of €30k over 5 years @8.95% APR, which works out at €616/mth. (because the loan amount is less than €60k it is not worth looking for a top up loan on our mortgage).
  • Should I sell shares and pay CGT at 33%? As some of my shares have a loss and others have a gain, I have calculated that I can sell €30k of shares and pay only €800 in CGT.
I’d appreciate any advice. Thank you.
 
Why is it not worth looking for a top up on the mortgage, does your bank have a minimum top up amount? It's years since I worked in banking but we actually had the reverse in that 60k was the maximum top up, above that and you had to do a full new mortgage. Obviously down side to top up is increasing life cover if you don't already have enough in place.
 
Could you use one years 40k income from your farm to cover the home improvements cost ?
You wouldn't have to borrow from anywhere which is an instant saving of the %interest you would have to pay otherwise.
If not, based on your CGT calculation, it would make sense to sell the shares and fund from the proceeds.
Borrowing would be a last resort in my opinion after you have exhausted other options.

Also look into any grants that may be available towards home improvements (ie energy etc..)
 
How disciplined are you at managing cashflow?

We have previously made large purchases (part purchase of a car, furniture) on credit card and then did a balance transfer to a 0% rate for a year and paid it off. We were however diligent about paying it off, we treated it like it was, essentially a high interest loan if we did not repay. So you would need to be 100% sure that you could make the repayments but this would be the same if you borrowed a personal loan, albeit the potential interest rate would be double if you were unable to pay. This would be suitable for the soft furnishings part.

Another thing we were able to do when we first bought our house and were very tight on funds was to purchase furniture on interest free loans from the retailer. I understand the finance cost is baked into the price, but they were the ones we wanted anyway so the cash price was the same as the credit price. It does limit your choices though of retailers but could work for some of your purchases.

For other improvements we did eg garden work, we looked at the stage payments required and were able to manage that around salary payments. We stopped savings for a period and kept our emergency fund to a minimum knowing we had worst case scenario options if emergencies did arise (credit card and family to fall back on).

Essentially look at all aspects of the works and how they can be financed, it might not need to be all from one pot but it can get complex so assess whether that is the right option for you.
 
You're doing a lot right (e.g. pensions) but your borrowing is effectively ensuring that you keep giving a significant portion of your wealth unnecessarily to other people. You don't need to borrow anymore money. Your car loans also look excessive compared to your income. Borrowing more money at 8.95% APR is crazy - you're paying €37k for €30k worth of renovations and handing the lender €7k of your money. I'm not even sure why this is one of your options, never mind option 1.
The right answer is posted above - do the work a bit at time as you earn and save the money. On a combined income of €140k you should never need to borrow another penny.
If you need the improvements and can't wait for them then sell the right shares to minimise CGT.
 
Thank you for all your replies. My preference is to keep borrowings down as we already have a few loans, which we’d prefer to pay down sooner rather than later. I think I will sell some shares and pay very little CGT and defer some work until May and use some of the farm income as the 50% of the payment from the farm is not due until May. Thanks again.
 
I think it’s wrong to have €100k of shares alongside expensive car-related borrowings and a renovation to fund. I’d look to use that to clear the debt and fund the renovation. I’d also look to maximise the pension funding.
 
conor_mc said:
Same comments as above really, fund it from income or if not, then from share sales. And your car loans raised an eyebrow here too.
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And also the farm machinery loans. With the farm leased out, I presume the machinery is lying idle.
 
Fortune said:
And also the farm machinery loans. With the farm leased out, I presume the machinery is lying idle.
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I should have mentioned that I have 50% of the farm on a 7 year lease and I am farming the other 50% on a part time basis. I signed up for organic farming and I have cattle. The grants are very good and I am also harvesting silage for sale. The nett income from both is circa €40k.
 
Monbretia said:
Why is it not worth looking for a top up on the mortgage, does your bank have a minimum top up amount? It's years since I worked in banking but we actually had the reverse in that 60k was the maximum top up, above that and you had to do a full new mortgage. Obviously down side to top up is increasing life cover if you don't already have enough in place.
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Yes, I spoke to AIB about this option as our LTV is circa 22%. However, they said it’s not worth it for anything less than 60k as we would have to get solicitors involved, pay for valuations etc.
 
misemoi said:
How disciplined are you at managing cashflow?

We have previously made large purchases (part purchase of a car, furniture) on credit card and then did a balance transfer to a 0% rate for a year and paid it off. We were however diligent about paying it off, we treated it like it was, essentially a high interest loan if we did not repay. So you would need to be 100% sure that you could make the repayments but this would be the same if you borrowed a personal loan, albeit the potential interest rate would be double if you were unable to pay. This would be suitable for the soft furnishings part.

Another thing we were able to do when we first bought our house and were very tight on funds was to purchase furniture on interest free loans from the retailer. I understand the finance cost is baked into the price, but they were the ones we wanted anyway so the cash price was the same as the credit price. It does limit your choices though of retailers but could work for some of your purchases.

For other improvements we did eg garden work, we looked at the stage payments required and were able to manage that around salary payments. We stopped savings for a period and kept our emergency fund to a minimum knowing we had worst case scenario options if emergencies did arise (credit card and family to fall back on).

Essentially look at all aspects of the works and how they can be financed, it might not need to be all from one pot but it can get complex so assess whether that is the right option for you.
Click to expand...
Yes, that’s a good idea as we are quite diligent in paying off our credit card and we have a credit card facility of €5k. We have also looked at purchasing the sofa and TV on an interest free loan over 12 months as the only extra over cost is a small set up fee of €20 and monthly accounting fee of €1!
 
Monte2014 said:
Yes, I spoke to AIB about this option as our LTV is circa 22%. However, they said it’s not worth it for anything less than 60k as we would have to get solicitors involved, pay for valuations etc.
Click to expand...
Odd but maybe AIB just don't have a TopUp product, I didn't work for them so can't say, obviously they are talking about doing a full new mortgage as their only option.

Thought most banks had a smaller amount as in the under 60k we had years ago type top up product that was a second loan that just ran alongside your original mortgage for same term or shorter if required. It didn't require any solicitors, might need valuation depending on how old the one on file is so was pretty simple to set up. Ideal for improvements that didn't involve structural work or need planning but looks like your bank doesn't have that!
 
Monte2014 said:
Yes, that’s a good idea as we are quite diligent in paying off our credit card and we have a credit card facility of €5k. We have also looked at purchasing the sofa and TV on an interest free loan over 12 months as the only extra over cost is a small set up fee of €20 and monthly accounting fee of €1!
Click to expand...

I would 100% not be purchasing a TV on 8% interest, nor adding it to my mortgage. Things that can easily have a short useful life like sofas and TVs should be bought in cash or 0% only.

You could argue the landscaping will add to the value of the home and maybe could result in a reduction in your LTV and therefore interest rate so that is a different type of expenditure.
 
Buying a sofa and a tv on credit while saving 1200k a month is strange. A tv and a sofa are not home improvements or works. They are just purchases. With your type of income and savings, I don't understand how it's even in the picture.
 
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