Is it wise for me to remortgage to fund a renovation, and rent a room to help fund?

H

Honestly

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Personal details
Your age: 38
Number and age of children: 0, with plans for 0.

Income and expenditure
Annual gross income from employment or profession: 147k
Monthly take-home pay: 6k
Type of employment: Full time private sector

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving about 500 per month

Summary of Assets and Liabilities
Family home value: 500k
Mortgage on family home: €239k

Cash: 7k
Defined Contribution pension fund: 8% with company matching 5%
Company shares: I do have some but they're pre-IPO and not worth anything right now

Note: I gifted a parent 30k and took out a 10k loan to assist in her move to downsize. When her inheritance comes this year, she will clear the 10k loan. I am not asking for the 30k back, but if I have an emergency, I can request support from her.

Family home mortgage information
Lender: Avant
Interest rate: 1.95%
Type of interest rate: fixed, four years remaining (of seven total)

Remaining term: (Original term is not relevant) 24 year
Monthly repayment: 1040

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? Yes

Pension information
Value of pension fund: 74k
Life insurance: Yes


What specific question do you have or what issues are of concern to you?
I am considering remortgaging to fund a renovation. Avant will give me a max of 113k in a remortgage, at current market rates. Their minimum remortgage is 75k. This netted out to 200pm extra over 24 years. I am comfortably paying that right now on the 10k loan for my mam and still saving.

I am trying to solve a few problems
  • I would like a downstairs bathroom and bedroom, in case I need it or my mother needs to live with me. The footprint of the house is small and currently open plan, so likely this would be a room in the back garden. I know this is potentially not needed for 10 years, or on the off chance I have an accident, but it is on my my mind after some friends have had failing health.
  • I would like a second income, as my industry is unstable, so I was thinking of renting out a room to help clear the mortgage and as an option if I am made redundant. In theory, if I built a back garden room I'd consider renting this. I have no side access so it would still be a house share situation but I can live with that. I have heard if you rent a room, it needs to be inside the house, but presumably if it's a nice private bedroom/bathroom situation and the renter is happy, they'd prefer the privacy? I think people ignore this rule but I am 100% open to hear otherwise.
  • The house is in ok condition, but things have started to fail, and I think the shower is about to go. It feels smart to put the time / effort into getting a new kitchen, bathroom, moving some doors/radiators etc, and do it all at once, rather than doing it piece meal.
My own goals would be to be in a position to have cleared my mortgage early so I could work part time / consult instead.

I'm trying to figure out if it is a good idea for me to do this now. Specifically, I think things over the next decade in the global economy are going to be unstable (with a big impact on my industry), so future-proofing myself by ensuring I have a nicer home, that I can rent, could bring me some more security overall, while adding only some financial risk.

Also weighing some nuggets I've learned over the years, some from here. Mortgage is the cheapest loan, costs to renovate are only going to go up, renovating early means I get to enjoy it for longer.

Any / all advice welcome.
 
Any smallish refurb / improvements such as kitchen or bathroom you should easily be able to do from your income.

I'd be concerned that you could likely over extend yourself borrowing & over capitalise your property.

You have a net monthly income of €6k & you are spending €4,500 a month on non mortgage costs?

My recommendation would be to pull in your horns & fire every penny you can against your mortgage. Do the rent a room as well for two years & throw that on the mortgage.

If / when the day comes that you need a different home, you'll be in a much better position to move.
 
Well if you want to do it then do it - you regret what you don’t do, how risky is your business?
The rent a room is also a good idea and commit to this for a year or two after the rebuild is completed.
Make sure you research the building contractor - as in look for good reviews and finish.
I would suggest it’s sensible to match the company pension contribution, but at 8% you could be comfortingly putting in more when you make 6k per month (minus 2 or 3 for bills per month you have a fair amount to put away).
 
The remortgage, the 200 pm you reference, is that just the interest, what about the capital repayments,
 
Making a nice house for yourself is important. However, if it's a plan to help your income in case of redundancy or provide security in economic downturn, I would probably prefer to plan a career move than rely on renting a room particularly if the space created doesn't fit the rent a room scheme and so is subject to tax. During the last economic downturn, rents decreased substantially.
On the loan side, with the additional borrowing, you are leaving yourself with a buffer of €300 per month. That's very little. I am not saying that you can't offer that level of borrowing. However, I would look at your expenses carefully, outside your mortgage, as a single person, you seem to be spending more than 5k a month, that is a high level of spending.
 
Op the comments below are just things to explore, not me being nosy or intruding on your personal life.

I would think your biggest risk is a single income house hold. In your shoes I would be planning for how to replace your income if your role is made redundant. Chances are you will get a lump sum. And with your ltv you should be in a position to negotiate a mortgage repayment scheule with your bank. I would research possible other roles eg could you move to a lesser paid but mote stable industry or public role, andhow would you get there ie retraining, networking ?

In the event of a downturn, how likely is it that you will rent your new space in a time of falling demand for rental? I was a renter in the last one and we lived very well in private places and I would never have considered a share, especially one without it's own entrance. Hard to imagine this in today's world but you could never have imagined 2007-2012 in 2005.

I understand your wishes to have your mother live with you though. I also think 38 is far too young to be worried about mobility unless you have existing health concerns or a family history of early life illness that you could have in the coming years. No need to respond on that obviously but just to consider.

If your mother does become dependant, is moving to your home the best option? Presumably you work full time at that salary level. What would happen to her existing home ? Would her home be the best option for her to remain in? Have you discussed the options with her?

And another one. If you are currently single, are you fixed on that or do you think you would like a relationship/family? Would the proposed works to your home suit a family? Plenty of people start relationships at all ages and stages and I would try to optimise your renovations so that you could toggle how you use the rooms and spaces. In the same way you are planning for lack of mobility that might not come, plan for other outcomes.
 
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If I can be a little blunt, it feels a little like you’re trying to justify this to yourself. To address a couple of points:

1) Potential redundancy - you earn a very good salary in your current role. I’d be very surprised if someone with a 147k level of capability in any industry couldn’t find at least a 70-80k job elsewhere. In short, you don’t need to invest this much debt into a future income stream that you most likely will not need. You can probably side hustle to a similar €1k pm income level if you needed to, without the massive upfront investment.
2) You want a downstairs bedroom/bathroom but let me tell you, a garden room is not the same thing as having it within your house. It won’t provide a fraction of the utility that internal rooms would, for the very same reason we did away with outhouses decades ago, they’re cold and inconvenient!
3) Your mother may or may not move in with you, and most likely won’t.

Tbh, if you really desire the extra space then I would sell up and move to a more appropriate house. Your solution will be so compromised as to add very little extra value to your property imo.

Spend a bit (short-term borrow if you really must) to fix the niggles.
 
Is 7k all of your savings currently (after gifting 30k to a parent)?

The situation you describe is not sufficient for rent a room tax relief so you'd have to declare and pay tax on any rent. This would not be the case if you rented a room which is part of your house and not in the garden.
 
Thank you all for the thoughtful replies, I would have replied sooner but I didnt get a notification email for some reason.

You have a net monthly income of €6k & you are spending €4,500 a month on non mortgage costs?
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I just did a look over my last four months of spend and I have 6k in 'need' (food, fuel, pets, bills, car etc) and about 5k in 'want'. Taking a hard look at the 'want' spend category, I am a bit surprised at how much is on taxi's and meals out. I do also have one big trip in there that makes up 1k booked for this June. I am also very generous with my friends/family, often paying for food/drinks/taxis, as very few of my friends are earning what I do and I genuinely enjoy minding them.

I checked and my net pay is 6.5k. Pension 600, AVC 360. I do 5%, which my company matches, and then I add 3% AVC. What would folks recommend I increase this to?

And another one. If you are currently single, are you fixed on that or do you think you would like a relationship/family? Would the proposed works to your home suit a family? Plenty of people start relationships at all ages and stages and I would try to optimise your renovations so that you could toggle how you use the rooms and spaces. In the same way you are planning for lack of mobility that might not come, plan for other outcomes.
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I dont plan to have kids, but I may meet someone who does which would not be a deal breaker, but seems unlikely at this stage.
I think if I met someone with kids, I would sell up and move somewhere more appropriate. This house is great, but it's layout is unusual and wouldnt suit family life well.

My recommendation would be to pull in your horns & fire every penny you can against your mortgage. Do the rent a room as well for two years & throw that on the mortgage.
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I would do this, but I am on a fixed rate. I can over pay by max 10% twice a year. I have in previous years sent 7k one year, and 3k another year. At the minute my main focus for savings is to regain my 'oh This post will be deleted if not edited to remove bad language fund' in case of redundancy/emergency so I probably wont over pay this year, unless I have an unexpected windfall.

I would think your biggest risk is a single income house hold. In your shoes I would be planning for how to replace your income if your role is made redundant. Chances are you will get a lump sum. And with your ltv you should be in a position to negotiate a mortgage repayment scheule with your bank. I would research possible other roles eg could you move to a lesser paid but mote stable industry or public role, andhow would you get there ie retraining, networking ?
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I dont plan to leave my industry, even though it is shaky. I hope it is likely I can always work here, for less if needed, and have transferable skills elsewhere if needed. I could consider a masters, but I dont think that would make a meaningful difference in my industry given my experience.

In the event of a downturn, how likely is it that you will rent your new space in a time of falling demand for rental? I was a renter in the last one and we lived very well in private places and I would never have considered a share, especially one without it's own entrance. Hard to imagine this in today's world but you could never have imagined 2007-2012 in 2005.
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This is good advice. I myself took advantage of cheaper rents at that time, renting an entire house with my ex for the price of a room today.

I understand your wishes to have your mother live with you though. I also think 38 is far too young to be worried about mobility unless you have existing health concerns or a family history of early life illness that you could have in the coming years. No need to respond on that obviously but just to consider.
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That's fair, I think I was trying to figure out solving all of the potential problems at once. Renovate, second income, future proof. Probably too much to be tackling.

If your mother does become dependant, is moving to your home the best option? Presumably you work full time at that salary level. What would happen to her existing home ? Would her home be the best option for her to remain in? Have you discussed the options with her?
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She downsized to an apartment and lives local now. She would want to remain independent for as long as possible, so this may be a problem to solve in 10-15 years.

1) Potential redundancy - you earn a very good salary in your current role. I’d be very surprised if someone with a 147k level of capability in any industry couldn’t find at least a 70-80k job elsewhere. In short, you don’t need to invest this much debt into a future income stream that you most likely will not need. You can probably side hustle to a similar €1k pm income level if you needed to, without the massive upfront investment.
2) You want a downstairs bedroom/bathroom but let me tell you, a garden room is not the same thing as having it within your house. It won’t provide a fraction of the utility that internal rooms would, for the very same reason we did away with outhouses decades ago, they’re cold and inconvenient!
3) Your mother may or may not move in with you, and most likely won’t.

Tbh, if you really desire the extra space then I would sell up and move to a more appropriate house. Your solution will be so compromised as to add very little extra value to your property imo.

Spend a bit (short-term borrow if you really must) to fix the niggles.
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  1. This is good advice. I did go from a job at 150k, to one at 100k for that same logic, and then found another one back closer to my original salary. I think I am solid for at least a decade in this industry at approx that range.
  2. Agree garden room is not the same thing. Was just looking at 'modular builds' but seems like a lot of cost for similar. Might have to give up on this idea.
  3. Yeah, I think that's maybe fair.
Selling up isnt an option, I would never get somewhere in this location now. And I love my estate, and I hate moving.
I am also not really looking for 'more space', instead trying to make better use of the space I do have, optimising for downstairs living and privacy if renting.

Is 7k all of your savings currently (after gifting 30k to a parent)?
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Yep. I am saving 500-700 per month since I gave her that mid last year.

After reflecting on my spend over the last four months and your very appreciated questions I am netting out to
  • Should I increase my pension contributions? If so, by what %? All guidance welcome here, I thought 13% was good.
  • Probably an extension or back garden room is not the best bet
  • Spend a little less on taxis and buying drinks/dinner for folks
  • Worrying about my mother or myself needing a downstairs room is maybe a problem for 10-15 years from now
    • if either of us did need a single floor living, her apartment could work
  • An internal renovation (kitchen, bathrooms, floors), followed by renting a room for a period (while room rental rates are good), and then using that income wisely (repay refurb loan, save, clear mortgage sooner) is maybe a better path
    • Alternatively, the house is in decent enough condition now, so I could in theory rent a room sooner, save that income, and then spend it on a renovation afterwards
 
The remortgage, the 200 pm you reference, is that just the interest, what about the capital repayments,
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Sorry, I just checked my notes, the quote I got was
  • Assuming a four year fixed rate of 3.4% with avant, the two quotes I got were
    • 113k over 24 years, 575 per month
    • 75k (their minimum loan rate for a remortgage) over 24 years, 381 per month
I checked with my solicitor who did my mortgage, and my mortgage move and the fees would be 2k if I took out a re-mortgage.

It's a bit of a weird incentive to go for 75k minimum so I dont have to get a personal loan, with much less favourable terms. Before I moved mortgages and paid off a lump sum, I was comfortably paying 1400 per month mortgage, so the 75k loan paid back at an extra 381per month feels very affordable. I wonder would it have been better for me to spend that cash on a renovation and keep my mortgage the same, but it was the pandemic (no reno not possible) and I had the cash for ages and didnt want to keep it longer (as I learned here I was losing it's value), and it enabled the move to the new low fixed term mortgage rate so no regrets I think.
 
One last update!
I just checked my pension at my new company (havent got a log in for it, weird, but just asked for it). In addition to the 74k pension I have from my last two jobs (13 years total), I have 12k with my new company from the last year (based on my payslips). So 86k total at 38. No idea if that's good... gonna start googling.

I googled, I need to google more...
 
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You really need to max out pension asap. I'm 43 and have combined pensions of 261k and even I feel like that should be so much more.
 
You're treating your friends and your current self too well while not treating your future self well. I understand the salary disparity but your friends won't be supporting you in retirement. Pay yourself first.

Your savings are miniscule for your salary level. I would also take a look at your needs. 1k mortgage, i know pets can be expensive (we spend on ours no questions asked!) But what are you spending the rest on? How expensive is your car ?

I don't mean to sound harsh but you've made the first great step of asking for advice so follow through, do a full forensic analysis of your spending and that should help. I would.ignore the new mortgage/rent a room idea until you get a handle on your spending and make a solid plan. Single income household might be single income retired household so consider this in your planning.
 
On the issue of "future proof" the house...
As you are 38, if it's the home you plan to stay, it could be 40 years or more. You are never going to future proof for the next 40 years. In all probability, you will want to make changes. Technology will change, fashion will change, needs will change perhaps more than you planned. The idea that you would spend now and somewhat be finished is not realistic. My house is nearly 20 years and we have replaced a lot of things in the past 4 years (mostly by choice). My plan is to do another big renovation by our late 60s, to future proof.
So while I would fixed what you think needs doing, I would be realistic on why you are doing it (ei to enjoy it now).
On your current wage, you should be able to do most of it: enjoy your life, travel, go out, plan for retirement, live in a decent house. But your finances need to be looked at for that.
By the way, I would not think about sharing my house with someone if I didn't need to.
 
I think I maybe are misrepresenting myself. I have managed to pay over 139k off my mortgage since 2019. I have gifted my savings yes, but I have a good path back to recuperating it. I am generous but I'm not foolish at the same time. I had a lump sum and I bought my car outright and paid off 50 grand off the mortgage which is why I was able to secure a better interest rate and term.

I am contributing to my pension and saving every month and I'm not in any debt. I do think I could be better saving and pension so I will work on that.

Can anyone give me a guideline for what I should be contributing to my pension or some 101 guide that is trustworthy. I do find it a little bit confusing. I really thought 13%, 1000 a month was a good contribution.
 
Honestly said:
Can anyone give me a guideline for what I should be contributing to my pension or some 101 guide that is trustworthy. I
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All things being equal (e.g. no expensive debts, mortgage at a "comfortable" level, able to pay for normal essentials, pension charges are competitive, pension asset allocation is appropriate - usually high/all equity content, etc.) you should arguably aim to maximise your contributions up to your age related tax relief level.

Tax relief limits on pension contributions

This page outlines the tax relief limits on pension contributions
www.revenue.ie www.revenue.ie
 
If you're aged 30-39 then it's 20% for you and any employer contribution is irrelevant for the purposes of tax relief.

Note that you can do 25% for the full year that you turn 40 no matter when during the year your birthday falls.
 
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