Should we remortgage??

charlie_d_3 · 2 March 2005 at 2:53PM

Just wondering what everyone thinks we should do? Sorry this is so long...

At the moment we have a 63k mortgage with bristol and west. We self certified and are now paying 6.75% as I was a PhD student with no proof of income and my husband had just left uni and so was on a low income. The house we bought cost 70k and we did extensive work on it.

We have just had the house valued and it is now worth 115k. We have a lot of student debts (21K) which we are really struggling to keep up with the repayments on. I am currently not working as have had a baby and would ideally like to not work for the time being. Husband now has a better job and we have been looking at 2 remortgage options in order to clear the debt and reduce the payments.

Option 1 was remortage with Bristol & West. Max offer was 84k so exactly what we needed BUT we will still have to self cert so interest rate will still be 6.75% Also total fees equal £500. We have a redemption penalty of 5% (3K) so cannot get out of self cert option until 2007.

Option 2 is remortgage with Natwest (our bank so will give us 86k). Interest rate fixed for 2 years at 5.15%. Massive reduction in monthly payments from the Bristol and West option, can add the 3k redemption penalty to the loan and no fees. Plus no redemption penalty after 2 years.

Total outgoings (mortgage and making min payments on debts) at the mo is £950 a month

Bristol and West remortgage £575

Natwest remortgage £475

What should we do? I am so tempted to just start again with the Natwest mortgage and write off the debts and 3k penalty although I know its money down the drain. I just keep thinking that at 24 we are still in a good position with a 86k mortgage on a house worth 115k.

Thanks if you've made it this far!!!
Charlie

Joe_Bloggs · 2 March 2005 at 6:26PM

Out of interest why do you have to continually 'self certificate' ? Why did your lending requirement jump from 63K to 84K? I assume this covers costs encountered as students. I had thought these rates were made easily managable by the lending instititions and govenment student debt recouperation authorities. Let MSE readers know what the situation is.
J_B.

charlie_d_3 · 2 March 2005 at 6:54PM

We dont need to self certify now as my husband is earning enough to qualify for the mortgage on his own. Before though he was in his first job out of uni and I was a PhD student with a grant that nobody would take into account (plus I was pregnant which is why we wanted to buy the house in the first place!) We cant now change to a non self cert mortgage (even with Bristol and West) unless we pay the redemption penalty.

The jump in lending requirements is purely to pay off outstanding student debts. Im not sure what you mean about lending institutions or government student debt recouperation authorities. My 6 years and my husbands 4 years at university meant large overdrafts, large credit card debts, career development loans and graduate loans. These debts as far as I am aware are pretty typical of graduates nowadays. Student loans (as issued by the student loans company) totalled £2700 per year of which £1050 went on tuition fees. All living costs were paid for by a mixture of the remainder of the student loan, part time work and overdrafts/credit cards. It is a sad situation when I now bitterly regret the three years I spent getting my PhD and increasing the already massive debt we are now in.

lisyloo · 2 March 2005 at 7:55PM

I think what joe was getting at was that student loans (from the governement) are meant to be at low rates aren't they?

I'm not an expert but I thought they were very low rates.
Did you get these loans before the governement set up came in? or did they not apply to you because you were not doing a first degreee course?

It would be useful to know what interest rates you are paying on the loans.

Basically option 2 is going to be more expensive (long term).
The reduction in rate (1.6%) is less than the £3000 penalty so it doesn't make sense to do this. It will cost you money.

Can you tell us the outstanding terms on your loans and interest rates.

It would also be useful to know the outstanding term on your mortgage.

I have a few ideas but would like to know those details.

charlie_d_3 · 2 March 2005 at 8:45PM

The government student loans (from the student loans company) are not included in the 21k as they are taken directly from wages and have no interest rate (other than inflation) we have tonnes of these too but not worrying about them at the moment!

Basically there is:
8000 career development loan (6.2%) 4years to pay
3000 graduate loan (9.9%) 2.5 years to pay
4000 graduate loan (8.4%) 3 years to pay
1500 overdraft (they want this back in 3 months)
4500 various credit cards (mostly 0% but not getting anywhere in repaying them)

The difficulty lies in the fact that the repayments are very high due to short repayment terms. The career development loan is 8000 repayable over 4 years, it's starting next month and to be honest im not sure we can afford it (in fact I know we can't!!)

24 years to pay on the mortgage.

It is so scary writing it all down (but strangely refreshing!) I really hope you can think of a plan.

Thanks

lisyloo · 3 March 2005 at 9:51AM

Consolidating into the mortgage is not necessary the good idea that you think.
For example paying 9.9% for 2.5 years is a lot cheaper than paying 6% over 25 years. Although you have a lower rate, you are paying for MUCH longer and therefore the total cost is much higher.

I have two points to make

1) One option you could consider in going interest only on your mortgage for a few years. This will considerably reduce your payments meaning you can pay off the debts. Once you've paid off some debts in a couple of years then go back to repayment. NOTE: you should be aware that you will not be reducing your mortgage at all during this period so longer term you will need to sort this out. This will mean paying higher payments in future years or adding on a couple of years to the term. So don't think there aren't any consequences. However you are young and it might help you out in the short term.

2) My second observation is that you seem to have a lot of debt (tell me something I don't know!)
I understand how you got student debts, however the credit card debt and overdraft appear to indicate that you are living beyond your means which is unsustainable. Can you tell us where the credit card and overdraft debts came from? Is there an explanation e.g. one off costs , or are you continually living beyond your means? If you are spending more than you earn then this is another problem that you need to resolve. There is no point sorting out your existing debts if you are running up new ones all the time.

Option 1 will only work IF in a couple of years time you have paid off some of the debts. If you are spending in a way that means you have incurred more debts, then it won't work.

Can you enlighted us on the non student debt and whether you are indeed living beyond your means, or are these historical problems that are now sorted? (an overdraft would indicate ongoing problems).

charlie_d_3 · 3 March 2005 at 11:15AM

Thanks for your reply.

The debts are (honestly!) all student debts, the only exception being approx £5000 of one of the graduate loans which was for the car. The overdraft was started during my undergraduate degree and has just not been repaid. The account that the overdraft is on is virtually redundant now so it is just existing debt that needs to be repaid.

The current situation is that we finally have control over our finances and for the first time ever(!) we are not relying on credit cards/overdrafts to live. We have a tight budget as we are well aware that sorting the current debt is useless if we are just creating new problems.

Your idea about an interest only mortgage is one that I had not even considered and will definitely look into. The thinking behind increasing the repayment mortgage was purely to reduce our outgoings at the moment and I suppose I thought that it didn't matter because it was as if we had only just bought the house without even getting that bigger mortgage in relation to the worth of the house. But I completely understand that long term this will cost a lot more than just biting the bullet and paying the debts off. I am sorry for rambling, I really appreciate your thoughts on all of this.

charlie_d_3 · 3 March 2005 at 11:22AM

Have just had a look and converting our exsting mortgage to interest only looks like it is only £100 less a month (428 to 328) does this sound right?

DiggingOut · 3 March 2005 at 4:28PM

£100 less is probably right.

The problem with putting loans on to a mortgage, as has been said, is that you stretch out the payments over a long time, and thus pay a lot more.

That said, if you can't make it with the current payments, you can't make it. And if you need that overdraft in three months, and you don't have it, then it is time to do something, right?

It seems a shame, though, to put 0% debt on a mortgage, and likewise to put debt at 6.2%. You might consider a middle road -- adding only the two graduate loans at high interest rates and the overdraft to your mortgage. That would take your mortgage to £72K, not increase the payment much, get rid of the higher cost debt, and give you more flexibility to try to bring down the other debts by eliminating those two loan payments.

Then there are the two mortgage options. Option #1 has £500 fee. Option #2 has £3K redemption fee. So the difference between the two is £2500. 1.6% of 72K is £1152 a year, or £95 a month savings for option #2. So if you have more than 26 months to run on self-cert, it is worth changing. It may be worth changing anyway, depending on other factors.

If you put all £84K on the mortgage (I hope you don't!), the savings for option #2 is about £110 a month, so the point at which it makes sense is if you have more than 23 months to run on self-cert.

If you want to keep any debt that you add to your mortgage from costing you a LOT more money, make overpayments. Even small overpayments make a big difference. If your mortgage doesn't allow overpayments, open an ISA and make overpayments to the ISA, then use it to reduce the balance next time you remortgage.

MarkyMarkD · 3 March 2005 at 8:01PM

If you say that you have sufficient income to cover the full £84k why do you say that you will have to self-cert (and pay the self-cert rate) on the additional loan with B&W?

Most lenders will let you take a further advance on a sensible rate, if you are borrowing a substantial amount - e.g. we are paying 5.35% on our further advance from YBS. Just because the original loan was self-cert shouldn't mean that a further advance needs to be, IMHO. And £500 is way OTT in fees on a further advance too - we paid £75 valuation fee which was then refunded on completion!

I definitely would NOT remortgage - it's mad to incur a £3k penalty to save (approximately) £3k. I would take account of some of the other comments - consolidate the debts with high rates, do what you can to shuffle the others on 0% or similar low rates - and take a further advance with your existing lender but pressurise them to get a better rate than the £500 + 6.75%.

charlie_d_3 · 3 March 2005 at 10:17PM

Thanks for your replies.

Defo makes sense to reduce the interest rate with Bristol & West then, whether or not they will let us do this is another matter, have rang them twice and they wont budge although haven't brought up changing lenders so will give that a try next. They're just saying that if we want to change rates we have to pay the fees plus the redemption penalty.

Obviously lowering the rate with them is the ideal scenario as that would mean actually saving the 3k so will give it another go. Otherwise think we will go for the better rate at Natwest as it would be nice to feel legit and we are tied in until Nov 2007 so would make sense savings wise.

Think realistically in order to stay afloat and not make things worse we will have to add some of the debt onto the mortgage, however what I hadn't thought about was just adding some. Digging out, your idea seems to work perfectly as the reduce in outgoings plus reduce in mortgage payment would mean we could afford to repay the 8k over 4 years. Seems like by far the best solution. Plus would then hope to overpay on the mortgage once this had gone in order to minimise the effects of having added the other debt on.

Thank you all so much for your help, sometimes you just need to take a step back and weigh things up, so glad we didn't jump into the new mortgage without all your advice.

Really appreciate it

Should we remortgage??

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