Consoldation or not?

Becles

Question from my sister that I wasn't sure about!

They have a modest mortgage and plenty equity in the house. They are tied in at 5.8% until 2009 when they are free to move without penalties. There's 21 years left on the mortgage.

They have 2 personal loans - one with £3K and 3 years left, and one with £8K with 9 years left. There is also some credit card debt with Cap One, but they have 2 empty cards. The small loan has a 1 month interest penalty for early settlement, the large loan is calculated on the rule of 78, so will have hefty penalties (I think!).

They have been offered a remortgage that will cover all the borrowing and settlement figures. They will pay 4.8% for 2 years, then are free to move. The company has advised them to extend the term back to 25 years.

Is this a wise thing to do?

I appreciate it will save them money each month as one single payment will be cheaper, but is it going to cost thousands in the long run?

Any help on working it all out would be much appreciated.

I've already suggested contacting the 2 empty cards and asking if they are offering any special rates for balance transfers.

Thefunkygibbons

Are they struggling to pay the existing loans?

The benefit to consolidation is if it significant reduces interest (In total and the rates paid) AND is accompanied by a chnage in lifestyle that stops new debt being incurred

Clearly if she can get a nil% card this would be a better deal

Unless, they are in trouble and can expect a rising salary trend, I would not be a fan of extending the mortgage term again

(But that is just me, see signature)

Becles

The are both low interest loans - the small one is 5.9% the larger one is 7.9%.

They are managing to pay the bills each month, but don't have a lot left for luxuries.

Xbigman

You say they are tied in till 2009, so if they remortgage now they get stung with penalties. And if it is a remortgage, is it fee free? Including legal fees and valuation fees (as opposed to just the lenders fees)? Do they have PPI on the loans which could be more money thrown away. In these circumstances (tie ins) it is very rare that it pays to remortgage. They could add thousands to their debts and end up paying it back for a quarter of a century.

If they wait for 2009 they will have paid off one loan anyway.

They need to cut back their budget and tough out the next three years. At that point a remortgage might make sense but hopefully wouldn't be needed.
Regards



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