Increase existing mortgage or take out new one

[18200]

Hi there,
Hope someone can give me a bit of advice. My hubbie and I have recently decided to build a small holiday home on a site I inherited some time ago. The mortgage on our family home is quite low and we were contemplating drawing down additional equity as opposed to taking out a new mortgage to build the holiday home. Would this seem the best way to finance this ??

many thanks
mmr

 

[ClubMan]

we were contemplating drawing down additional equity as opposed to taking out a new mortgage to build the holiday home.

What do you understand as the differences between these two options?

 

[18200]

Hi, I suppose I assumed that there would be additional costs involved in setting up a whole new mortgage and also that mortgage interest relief would be available on our existing mortgage but not one the mortgage for a holiday home ??

Thanks
MMr

 

[murphaph]

Hi, I suppose I assumed that there would be additional costs involved in setting up a whole new mortgage and also that mortgage interest relief would be available on our existing mortgage but not one the mortgage for a holiday home ??

Thanks
MMr

You cannot (legally) claim tax relief for what you are proposing. If the funds aren't used to improve/extend your principal private residence then you can't claim relief I'm afraid.

Costs and possibly interest rates may well be lower with some lenders alright but a top-up mortgage is actually a second mortgage secured on the same property, your existing mortgage remains the same.

 

[PM1234]

If you have enough equity in your family home then it is possible to take a top up on your existing mortgage. However you cannot claim TRS as your reason for taking the top up doesn't qualify.

You really have to check what interest rates will apply for a top up on your family home against a new mortgage.

Remember to take increased life cover/insurance and legal fees into account when doing your calculations.