Rod Murdison, proprietor of Murdison & Browning, says that a remortgage to a flexible product may be the best of the three options that seem to be available in this case Presumably the Johnsons want to borrow to fund their home improvements and not use any savings they may have. This would appear to leave three choices – a further advance from their existing lender, a secured loan or a remortgage for the increased amount.
Depending on the type of mortgage the couple has, a further advance from their existing lender could be the cheapest option in terms of upfront costs. Assuming a clear credit history, this lender would be falling over itself to give more money to a couple fitting their profile, that is a higher rate tax-paying professional with two incomes coming into the home and a low LTV even with further borrowing.
A secured loan may be the answer if the Johnsons' existing mortgage has substantial redemption penalties and they want to repay the loan over a short period, say five years. The positives are that there are few, if any, upfront costs, the money can be made available very quickly, the loan is independent of their existing lender and the term of the loan can be different to the mortgage. Negatives are the type of loan available, the general inflexibility of a second charge and most obviously, the higher interest rate.
If the couple have no redemption penalties and are paying variable rate on a mortgage where interest is calculated annually then by far their best option would be to remortgage for the increased amount, specifically to a flexible mortgage where interest is calculated daily. The ramifications of this are more than just the ability to drawdown the monies needed for home improvements as and when required.
Although not clearly stated, Dr Johnson may put money aside towards his yearly tax bill of around £15,000. If, instead of saving those monies in a bank, he paid £1,250 per month into his mortgage account and only drew out the sums accumulated twice yearly, he could dramatically reduce interest paid and the mortgage term.
If the Johnsons meet their children's schooling costs out of savings then those monies would produce a much bigger return if paid into the new mortgage account than languishing in a deposit account with a small taxed return. Monies could then be drawn down three times a year for each of the terms. If the fees are being paid out of income, then again it would be better to pay them off against the mortgage and drawdown the fees as and when needed.
There are a couple of extra 'review opportunities' that the broker may want to check before presenting to the Johnsons. It may be possible to find a daily interest flexible lender who would allow them to repay their mortgage every two weeks instead of monthly.
Finally, it would be worth discovering if there were a lender who would allow the mortgage term to be as long as possible. If some part of the mortgage could remain outstanding into retirement, then monies could be drawndown at a very late date, funding a joint life second death policy.