Northern crock

getreal_3

I am due to come out of my Northern Rock fixed rate mortgage on 1st october, we are currently trying to sell our house and do not intend to buy another.


Curent together mortgage- £201000 on mortgage and £24000 on the unsecured

We also have £10000 on a credit card

Current value of our home is between £245000-£250000

Our finnanicial advisor has suggested going for a new fixed rate deal and combining the unsecure to make total mortgage value £225000, leaving us only 20/25k equity

My concerns are-

if we sell were going to have to pay huge fee to come out of fixed rate as we would not be buying another house

I am sure I read somewhere that using all the equitity in yr home to panic pay all debts was a bad move....


Any suggestions?

x x

dunstonh

Our finnanicial advisor has suggested going for a new fixed rate deal and combining the unsecure to make total mortgage value £225000, leaving us only 20/25k equity

That sounds like an awful recommendation. Is this person really a financial adviser or a bank clerk?

if we sell were going to have to pay huge fee to come out of fixed rate as we would not be buying another house

Correct.

I am sure I read somewhere that using all the equitity in yr home to panic pay all debts was a bad move....

Not really. It can be good or bad depending on what you do next. If you do it and it saves you money in the short term that prevents you getting into bad debt then its a good thing. It may cost more in the long run but if managed well it can be beneficial. If you do it and then just spend again on the credit cards etc and build up the debt again then its a bad thing.

getreal_3

Hi, thank you for your advice. Could you just clarify- at the top you said what an awful recommendation to use the equity in the house to combine our debts, but then at the bottom you suggest that it can be a good thing as long as we do not spend any more......

To combine our debts we would have to use the value in the house as we have no savings

happybroker

The recommendation to go into a new fixed rate if you are selling and not buying again is what is awful, you would have early repayment charges on the mortgage in all likelyhood and they were to be 5% of the loan amount that would be £11,250!!! Amazing, the adviser should be taken out and shot!

Have you had much interest in the house?

You need to ensure that you're not going to be tied in to your mortgage if your going to pay it off.

If you are going to repay the credit card when you sell then effectively your plan is to use the equity in the property anyway.

Good luck

JimmyTheWig

Agree with the above.
The last thing you want to do is take out a mortgage with a tie-in period where you would have to pay a fee in the first x years if you pay the mortgage off. Because you are planning on paying the mortgage off!

The only benefit of the doubt I can give the mortgage advisor is that his suggestion was reasonable if he didn't know you weren't planning on selling the house.

If you were staying in the house for a few years then rolling the debt into the mortgage might be the answer. It's dangerous ground, as has been said, as it opens up the door to more bad debt. But done right it is fine.

So, your options...
1. Do nothing. Sell the house as quickly as you can. In the meantime accept that your repayments are going to go through the roof in October.
2. Take out a new mortgage with no redemption penalties. This will probably mean paying a bank's Standard Variable Rate, which will still be high. But it may be lower than Nothern Rock's SVR. But check if you have to pay arrangement fees / exit fees for the new mortgage. If you do these could wipe out any savings you make in interest as you (hopefully) won't have the new mortgage for long.

Are you paying interest on your credit card balance?
If so, have you considered transfering the balance to a 0% credit card?
You could do this in addition to either of the options above.

getreal_3

It is quite possible that the advisor forgot as we have been bombarding him with alot of info.. I am fully aware that we do not want a fixed rate mortgage so thats fine, I am more conerned about combining this 24k slush fund into a new mortgage.. really not sure what the safest thing to do is.. also if I didnt combine it how would I pay that part back upon exiting the northern rock mortgage?

in terms of the c/c its on a 0% deal until feb 09 so thats not a problem ohhh the dilema!! We are going to put the house on the market within the next couple of weeks but there is a strong chance that we will have a real problem selling (see previous threads) so we do need to bear in mind this and the fact that if we lose say another 10k with the price drop then we would take it off the market...

hmm

jamesd

Forget remortgaging. Just get the place sold. Not worth refinancing the 0% credit card debt into a mortgage, better to pay SVR for a few months while you sell.

To sell, get in early and cheap or it'll be on your hands for a long time. Need to make sure that your prospective buyer thinks that they are getting a good deal and that means offering a price that matches where the market is going, not where it's been.

hoggums

What is your valuation of 245-250K based on? There's a housing price crash going on and if this is an estate agents valuation then you should expect offers of up to and over 10% below this price. This then completely knocks out any equity in your property.

You should look that this carefully and realistically before putting your property on the market.

Cazza

Erm, I read the OP's post differently, I don't think the other adviser is recommending paying off the CC with the remortgage, but the unsecured part of the NR loan.

The OP has £201,000 on the mortgage and £24,000 on the NR unsecured loan. If he remortgages and leaves the £24,000 with NR, the the rate will go through the roof!

Or am I missing something here??? I haven't had my first cup of tea yet.....

JimmyTheWig

Ok, so the credit card balance can stay where it is.
Assuming you can sell the house by February and get enough for it you can clear the credit card balance with the proceeds.

As long as you get at least 225k for your house then with the proceeds you can pay off your mortgage and unsecured loan. (Ignoring, for now, the costs of selling the house.)

What interest rate will you be going on to with Northern Rock?

getreal_3

Hi there, sorry there have been a few posts since I was last on, to clarify;

we are not concerned about the c/c as its 0% until next feb

the valuation is not based on estate agents valuation but an expert conveyancing valuation that had to be done for something and an offer we had but could not accept for certain reasons a month ago and what the properties are selling for. We have taken into consideration the market drop, but also the area we live in is fairing slightly better (however our home was valued at £270,000 in october so I think a 20k drop is substantial

we would go onto northern rocks standard variable rate, not sure what that is at the moment

our BIGGEST concern is not being fixed for over a year and the 25k on the unsecured that we will need to pay back

my finanicial advisor called yesterday and said that he had already got a mortgage in principal (we didnt ask him to actually get the offer??) with Hailfax and they had agreed a 90% mortgage, which he said is hard to find these days but at a slightly high rate(unfortunately cannot remember the rate) and that they would cover the unsecured....

my problem is that because of the unsecured we have to have a mortgage with a higher rate and run the risk of loosing our home if we dont keep up the payments, not that that has ever happened. At the moment with the together mortgage we are paying £1200 all in, the halifax deal would be £1360 i think, BUT I am thinking that I would prefer to have a lower rate mortgage and keep the loan seperate so that there is less secured on the house and there is less chance of going into negative equity

Surely it would work out safer to have 202k mortgage at lower rate
25k as an unsecured loan, albiet slighty higher rate but it would even out as the halifax mortgage rate would be higher and then we can chip off from the loan as and when we want????

I think we will have to speak to another financial advisor any recommendations?