Mortgage Reserve - Use it or Not ?

rdclarke

I have a offset mortgage with Barclays and currently have a reserve set at £41,000 my problem is as follows:

The last 18mths I have had a back problem and the treatment has been costing me around £500 a month this has eaten into my savings and my current financial position is that I earn around £65k pa + I get a bonus in Jan of around £15k making me about £80k pa.

Ok sounds like a lot of money but I do have £200k mortgage (£1400 pm) my other problem is that I have a car loan and credit cards totalling £700 pm payments what I am thinking of doing is using my £41k reserve to pay off the £20k so saving me £700pm payments. My understanding of the reserve is that I only pay the interest on the £20k and it is ok as long as I pay it off by end of mortgage term (18yrs), would this be at the same interest rate as the mortgage? My plan would be to pay £7k off each Jan for 3yrs is this better than consildating my debts and getting a loan.

Any advise would be great and I appreciate I am in a better position than many so sorry if this upset people who might be struggling themselves.

getmore4less

I would check with barclays, but with an offset the mortgage reserve should be at the same rate(mine is) as the mortgage

Reducing the interest on debts is a good idea as long as your budget is under control(which it may not be because of the debts) and you don't extend the term of the debts which you don't plan to do.

I would set up a budget that uses just your normal income still paying the £700pm towards the increased loan, then use the full bonus to attack the debts and the mortgage.

I would have a good look at your annual budget and spends.
£80k gross for the year must be over £4.3k pm after debt payments going out that leaves over £2k I would review what you spend it on since you say you are spending even more than that(savings are going down).

Check the loan for any penalties no point in moving it and paying interest twice.

Make sure there is no PPI on the loan or CC's.

At the end of the day when offsetting using the morgage reserve or offset savings makes no difference you just increase the net debt if you are spending more money than is coming in.

How much have saving gone down and debts gone up in the last 18month if it is more than £9k then you cannot be just the treatement. what happened to this years bonus? why can't the full £9k(£15k less tax) in Jan be used to tackle debt?

Your problem is probably that the budget is not under control if your net debt has been increasing for the last 18months.
Reducing the interest rates on $20k debt will not save that much. (probably less than £200pm depending on the loan) so you will probably need to cutback as well.

You could also consider getting a cheaper car to reduce debt further.

CONSOLIDATION only works if the budget is under control.

rdclarke

Thanks for the info you are right I have been overspending in other areas but have started to sort that out. I have unemployment insurtance £50 per month chances me being made redundant are very remote. Critical illness for me and wife £75 per month, BUPA for family £125 per month. I have looked at all my bills i.e. phones, broadband, elec, gas and TV and have gone to market for best deal cancel my Sky and gone to Freeview. What I want to do is pay off the £10k I have on credit cards all be it at 0% for 6mths and would like to pay off the £10k car loan. Was thinking if I took out £20k loan over 5yrs and then in Jan each year I pay around £7k off from my bonus would all be paid in 3yrs. The cost of loan about £200 pm so would save £500 a month does that make sense it is just that it is a bit cheaper if I use my reserve but I have just noticed that my reserve is not £41k but under overdraft facility they have -£41k, think this is a mistake because it used to be under reserve but thye moved all my accounts from Woolwich to Barclays (same company). Will need to get his checked out don't seem right I should have a -£41k overdraft does it?

Bismarck

my understanding is that any lending on the reserve will be at the standard variable rate unless you have an offset mortgage.

you've essentially got a large secured overdraft facility at a preferential rate - although it's not as cheap as your mortgage.