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Minka1313

Save or redraw?

Save or Redraw?  

78 members have voted

  1. 1. What should we do?

    • Are you crazy - always save for "wants"
      12
    • Life is too short - redraw and love your space
      66


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Minka1313

I am so frustrated! My husband and I have always done the right thing with money - Saved up our house deposit, paid off our car loan in 2 years instead of 5, only have 1 credit card which gets paid off every month.

 

But...

 

There is about $120k worth of renovations we would love to do to our home. These are "wants" not "needs" but they would make our house perfect!

 

I am getting to the point were I want to say "stuff it! Lets just redraw on our mortgage and get them done and enjoy them" but this goes against everything we normally do. If we knuckled down and didn't do anything fun, we could probably save that in just over 6 years -realistically probably 10 years.

 

So wise EB should we save or redraw? What would you do?

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YodaTheWrinkledOne
Posted (edited)

For the example you have given. DH and I would probably redraw and just get it done. If it was going to make a sustained and lasting difference to our home environment and how we feel as a family, we could consider doing it sooner rather than later.

 

ETA: You're not talking buying a few superficial homewares items here. You are talking $120K renovations, so I assume it would include things like extra floor space, more storage, better home design to make your home function more efficiently and smoothly. To me, that would simply become part of the mortgage (again). Cheapest interest rates around at the moment to allow you to do something like that too.

 

ETA2: Also factor in that major house renovation prices don't stay stable over a 6-10 year period. What you think might cost you $120K now is likely to cost upwards of $180K in 6-10 years time.

Edited by YodaTheWrinkledOne
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-Emissary-

Redraw if you could easily afford the mortgage repayment.

 

You’re renovating your house not doing something silly like buying a new car so I’d say go for it! It’ll hopefully also add some value to your house as well.

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born.a.girl

I'm not sure I can contribute to your voting, because the options really don't reflect the way I think about it.

 

 

Perhaps if you'd said 'redraw the money and sail around the world on the Queen Mary until it runs out ...' then I might have called it rash.

 

Doing well advised renovations should add roughly the same to your house as you're spending.

 

With interest rates so low, the opportunity cost is never going to be so much in your favour to do them.

 

The bonus is you get to live with the changes for an extra six years.

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chillipeppers

I’d save. It’s not a long period you are talking about

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YodaTheWrinkledOne

I'm not sure I can contribute to your voting, because the options really don't reflect the way I think about it.

Same here.

 

Undertaking major house renovations is not a flippant FOMO YOLO moment.

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IamOzgirl

I’d save. It’s not a long period you are talking about

It is a long time.

 

A lot can happen in 6 years.

 

6 years ago I was single.

 

I meet my partner, sold a home, bought a home. Did ivf, had a baby, lost a baby and now separated.

 

OP. Do the renovation.

 

Investing in real estate is never silly.

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MsLaurie

Do the reno. Enjoy your house, don’t spend 6-10 years feeling dissatisfied in your home.

 

We’re looking at doing similar, may even need to remortgage to do it properly. But no point doing a half job and it not working.

 

I regard redraw as a savings account anyway- it’s money you didn’t HAVE to pay, so you kind of already have saved for at least part of the outlay.

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EsmeLennox

How much value will the renovation add to your house? That would be a consideration for me. Avoid over-capitalising.

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YodaTheWrinkledOne

I’d save. It’s not a long period you are talking about

A lot can change within a family/individual over a 6-10 year period.

 

Will the renovations still have major impact in 6-10 years time?

 

In our case, our kids would be adults in 6-10 years time and may not be living at home. So major renovations now to make a house more liveable now are probably going to have the biggest impact when children are smaller and still living at home. That would be a factor to consider if we were making a similar decision.

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rob^2

The way I see it, any money you can redraw from your mortgage is money that you HAVE SAVED already (assuming it is true redraw - extra repayments that you have made and that you will not be actually refinancing).

 

So you have already saved to be able to do the renovations.

 

we did this 2 years ago - redrew on our mortgage so we could renovate and create a study to enable me to continue working from home,

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magic_marker
Posted (edited)
:) Edited by magic_marker

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Kallie88

I'd renovate now, it would be better to enjoy your home from now on than wait and it probably cost more and be harder to replace/resave the money. Right now with such low interest rates seems like a much better time to pay that money back in if you can. I'm assuming that these are structural renovations, which should also add some value to your home. So, as long as you can still comfortably make the repayments on the home with the redraw gone, I'd go for it.

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SeaPrincess

The way I see it, any money you can redraw from your mortgage is money that you HAVE SAVED already (assuming it is true redraw - extra repayments that you have made and that you will not be actually refinancing).

 

So you have already saved to be able to do the renovations.

 

I agree with this. We use our mortgage to save because while we’re saving, we’re also benefiting from reduced interest.

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123Tree

I think it depends. We spent about that on our Reno. Our house was a complete dump and I hated it. We couldn’t use some room’s because they weren’t fit for purpose. We didn’t have adequate heating. It was tough living like that. If this was the case I would do it for my mental health. We lived like that for about seven years.

 

Now I would love to get the backyard landscaped but it wouldn’t be life changing. I would probably save for that.

 

However redrawing is taking out money that you have saved.

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Chaotic Pogo

If they will make an actual functional difference to your lifestyle, eg a deck you can now have a bbq on, do it. A home office to reduce commute days.

If it’s just prettifying the facade, so nice to look at but no functional change, don’t. BTW I consider more windows/light functional.

 

huge financial crunch coming. Assume one of you loses your job, would the deck be worth it?

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raechel82

Not enough information.

 

I live in a 2 bed unit by myself. Original bathroom kitchen etc, Not very good condition.

I save and get things done. Only loan is mortgage, I keep enough savings that I could survive almost a year with no income. I am probably more conservative than most.

 

Cant you do them gradually. There is a massive difference between saying 6 years to save and 10 years.

 

I would set myself up a proper budget as number one priority.

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Prancer is coming

I was not a fan of the options neither.

 

Why do you pay things off earlier and pay extra payments? Is it to pay it out quicker, or just to save money that you can use when you wish? I know for us we paid things out quick as we wanted to pay our house off early. Withdrawing for us would go against this. And it is bigger than just accessing the money you saved. How much extra is it costing you in interest? And yes, interest rates are down, but for how long? Will the Renos be worth it if rates are at an all time high in 6 years?

 

i voted leave the money and save as you described the revocations would make your house perfect. If you did not have enough space, unsafe decking or bathroom without a functional shower, I would be more likely to look at a redraw. But it makes it sound like your house Is quite functional and renovations would be nice, but not really necessary.

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MadMarchMasterchef

For me it would depend what stage you were at in your life and how secure you were in your jobs. But Im a very risk adverse person.

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Hollycoddle
Posted (edited)

Why do you pay things off earlier and pay extra payments? Is it to pay it out quicker, or just to save money that you can use when you wish? I know for us we paid things out quick as we wanted to pay our house off early. Withdrawing for us would go against this.

 

Because every extra dollar you have sitting in your mortgage is saving you interest over the short and long term. It can actually be massive.

Edited by Hollycoddle
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AllyK81

It depends on how easily you will service the extra really.

 

And what the actual renovations are and if they will add value to your home.

 

And your life stage and how that might change over the next few years.

 

It's not a lot of money so I'd be minded to go ahead and do it but that's dependent on the above.

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MadMarchMasterchef

 

It's not a lot of money so I'd be minded to go ahead and do it but that's dependent on the above.

 

Should add it depends a lot where OP lives. 120K extra on mortgage might not be much in Sydney but in rural Tassie it might be double.

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IamOzgirl

Would you think twice about moving and spending the extra $120k?

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jayskette

consider your opportunity cost when thinking of both solutions.

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Caribou

Rather than redraw, get the loan extended to 100k, then you still have cash assest for rainy day situation. Interest rates are crazy low. Never a better time to do it.

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