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Save more money & wait to renovate or get a loan ?

  • 26-12-2022 8:45pm
    Registered Users Posts: 21

    Hi everyone,

    I'm looking for some advice on this as my poor head is going round & round wondering what is best to do. I would really appreciate your input.

    We are planning a smallish extension to the rear of our house, knock down an interior wall to create an open plan kitchen / living area. New kitchen out in, new floors etc... It's badly needed as it is an old older house & we are a growing family. We are currently saving in the local credit union & saving cash on the side when we can. We had hoped to have the work done this summer but it would mean taking out a loan of €30,000 + We will have maybe €28,000 saved ourselves €10,000 of which will be a loan from my Mother who we can pay back over 3 years. We are nervous about getting loan approval from the credit union as my husband is the only one working & is self employed ( which I know can work against you ) he makes an average about €44,000 a year. If we do get loan approval we will have the debt which we can manage but I am now considering holding off until the 2024. It would be hard I'll admit as the house badly needs this work but by then according to my calculations we could have anywhere from €37,000 - €41,000 saved ourselves meaning a smaller loan, less debt. It does sound like a wiser decision & with inflation I'm thinking things could also be better in 2024 with construction costs possibly coming down.

    What are your thoughts? hold off , save more or go ahead as planned?

    Thank you



  • Registered Users Posts: 547 ✭✭✭Q&A

    No harm talking to the credit union and seeing if the loan is a runner. They will make an assessment on your ability to service a debt. However that's only their opinion and you should form your own view on your ability to repay any potential loan.

    If they say no then that's your decision made.

    If they say yes - and more importantly you feel you can meet the loan repayments - then you have to consider if you're better off going ahead now or later.

    How confident can you (or anyone for that matter) be that the cost of construction still be materially cheaper on the future? The cost of borrowing may be higher in a years time. How sensitive would next year's budget be to higher loan rates?

    Jim2007 is right in 10/15 years the extension may be extra space you won't need but likewise the longer you wait the less benefit you will get from it before your chicks for the coop.

  • Registered Users Posts: 367 ✭✭brookers

    You sound like you are relatively young if you have small children. I know people who are in their late 40s 50s, have not done anything to their houses in absolutely years. They are sending their kids to private schools, they live in fairly cramped spaces with kitchens and bathrooms that are donkeys years old as they have this absolute fear of having loans. Any money they have goes towards the fees. Their attitude now is we need to save for our pension too. Personally if I was young I would like to have a fairly nice kitchen and bathroom and somewhere to fold clothes out of the washing machine, as long as I can work to repay the loans. I think you are doing a great job saving, well done, keep going at the saving, you might be able to get a part time job when the kids get older and could save more. Maybe if you save more you could do a bit of insulation as well with the help of government grants. If you have youth on your side a few more years saving won't be a bother and you still young enough to enjoy it.

  • Posts: 0 [Deleted User]

    Save. It will make you more discerning who you choose to renovate. Start reading reviews of companies now, and don't concentrate on one "review" website.

  • Registered Users Posts: 21

    Thank you all for your replies. I do think saving more is the best decision. I am not that young unfortunately. I am 42 & my husband is 40. We have a ten year old & a 2 year old. We really aren't looking to get something extravagant. We have a 12 square metre extension that was there when we bought the house but it is literally stuck on, very badly built. We want to knock that down & get an extension a bit bigger than that. At the moment the kitchen is tiny. It's a very narrow space & hard to move around comforatbly if more than one of us is cooking etc. By knocking the wall through to the dinning room & extending it will make the world of difference to us. We have been dreaming about this for years but are finally in a position to save. I am thinking if we waited this long we can wait another 12 - 18 months & get smaller jobs that needs doing in the house in the meantime.

    The credit union told me the loan we can apply for is an online complete loan so we would have to apply online & see what happens. This is there 6.17% interest loan. I spoke to my husband last night & he told me he would rather keep saving & take a smaller loan in 2024 but we can see where we are at in 3 or 4 months & decide.

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  • Moderators, Business & Finance Moderators Posts: 9,791 Mod ✭✭✭✭Jim2007

    The issue with these kind of financial decision is that they cant be reversed if it turns out you got it wrong. I would encourage you to do a long term plan of how things are likely to look say 10 years out with the loan and without the loan. Of course it won't be accurate but it should give you some kind of feel for things.

    For instance your 12 year old will be a young adult by then, most likely having moved out. They'll also most likely have gone through some kind of education in order to learn their trade or profession, will you need to support them/can you afford to support them? Likewise what about your youngest, do you need to put some money aside to support them?

    Is your house part of your pension planning? While the changes you are about to make significantly increase it's value, so that on sale you'd have significantly more money to fund your retirement?

    My advice is take your time, play around with lots of different possibilities so you at least have some kind of feeling for how things might go.

  • Registered Users Posts: 175 ✭✭thehairygrape

    Save. Always.

  • Registered Users Posts: 25,495 ✭✭✭✭Mrs OBumble

    Will the extension add resale value to the house? If it does, then I'd look more favourably on it than borrowing for something like a car.

    But your single income would make me nervous. Is there some way you can get some earnings and so save faster?

  • Registered Users Posts: 378 ✭✭Bicyclette

    Your two year old will be going to school in the next few years. Could you hold off until the two year old starts school and then look at getting a job, which would cover the cost of the loan repayments.

  • Registered Users Posts: 21

    At the moment I'm studying in order to go self employed myself as an holistic therapist but I can't work until then. My husband works erratic & long hours & I don't have childcare as my parents already take care of my brother's kids 3 days a week. I have worked all my life up until had my now 2 year old. I am very good at budgeting & saving though. My husband not so much so he leaves that up to me.

    The extension would definitley add value to our house. I bought this house in 2009 knowing it would need a lot of work. We had new windows put in, a new bathroom & a lot of repair work over the years. The kitchen looks awful to be honest & always feels dirty no matter how much I clean because it is so old. The more I think about it the more I feel we should continue to save. It will take longer but it is better then the stress of applying for a bigger loan & the higher debt. I'm hoping to start my own business in the next year or two once my youngest starts preschool or primary.

    Does anyone think that the credit union would lend €30,000 over 10 years on a €44,000 income for a family? I'm thinking better to save & borrow less like €15,000

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  • Moderators, Business & Finance Moderators Posts: 9,791 Mod ✭✭✭✭Jim2007

    And were is the money going to come from to start a business? Another loan? As I said you need to do some serious planning.

  • Registered Users Posts: 21

    To be honest the type of business I will be running won’t have a big startup cost. I can work from a room in my home. I already have what I need to start up. I just need to paint the room etc..

  • Registered Users Posts: 21

    To be honest the type of business I will be running won’t have a big startup cost. I can work from a room in my home. I already have what I need to start up. I just need to paint the room etc..

  • Registered Users Posts: 211 ✭✭smokie72

    If you have a spare room could you maybe take on a lodger on the rent a room scheme? Extra few bob and its tax free.

  • Registered Users Posts: 21

    Unfortunatley I don't think that will work. We have 3 bedrooms ours & the kids & our 2 year old is a light sleeper so a lodger wouldn't work for us but thank you for the idea.

  • Registered Users Posts: 2,549 ✭✭✭Cape Clear

    Go for it! 40/42 is quite young when it comes to taking on extra debt. The only reservation I would have is the extension devaluing your current property. Will it impact upon garden space and making the property less attractive to a prospective buyer. In the current climate few 22 year olds are flying the coop.

  • Registered Users Posts: 146 ✭✭jack in the box

    Would you not go the Mortgage top-up route, which would mean you could increase the term of debt and you will have half the interest rate. (That's if you qualify).€30k over 10 years is slot of disposable income gone on 44k per year.

  • Registered Users Posts: 7,442 ✭✭✭fliball123

    I would be waiting at least 12 months everything construction related is sky high at the moment there is no way the prices that are being quoted for extensions can stay this high. Already all of the construction numbers are showing a fall off in demand during the tail end of 2022 and with commodities falling you will save yourself a few grand by waiting as well as saving and not paying interest. Add in if the war ends or China get its act together the supply chain issues that have brought these costs up will no longer be there.

  • Registered Users Posts: 1,297 ✭✭✭walterking

    If you are mortgage free and are showing good savings you will not have any issue getting a loan.

    My feeling is that the current layout/small kitchen get you down and the tight space makes things difficult.

    So borrowing your holistic cap 😁 I suspect that this extension would not just make things easier, but also give you an inner calm and I think that has to be factored in.

    The repayments are €350/month, but it will mean you would not have ability to get other finance.

    I would hold off and do it in conjunction with getting a room fitted for the holistic therapy work so that its connected in your head with a new income stream with the aim of the new income stream paying the smaller loan and that will give you an inner satisfaction and a new kitchen