Borrowing more on mortgage to pay off debt - is it ever worth it?

thetigerwhocametotea

We have about £200k equity in our house and a mortgage of £200k (currently tracking BofE base rate +.99).
Our monthly payments have gone down quite a bit recently so we are thinking of borrowing another £25k (although the BSoc will only give us a rate of 5.19% for this) and paying off all our credit card debt, car loan and overdraft, having a bit of work done to the house and then overpaying as much as possible each month to clear the £25k asap.

We are paying more than 5.19% interest on our debt so I think it would make sense to clear the lot all at once and overpay. We would still be able to meet our payments on the rest of the mortgage when it begins to rise (as it inevitably will).

My husband is not as keen, he doesn't want to start the 'consolidating loans' vicious circle he says.

Any advice?

Kavanne

What is the term of the extra borrowing? The rate may be lower but if the term is 20 years you might end up paying more in interest.

Consolodating is pointless if you don't STOP borrowing!! Cancel those credit cards and don't take any more loans. Start SAVING!!

sammyjammy

I think it can be but only in certian circumstances. Will you rack up £25k of unsecured debt again? What is your plan.

I was one of those serial consolidaters for years until I bought my house and realised things had got out of control, I ended up in a DMP for a year and then remortgaged my house to repay everything, the numbers were much smaller than yours apart from the level of debt! I bought my house in 9/99 for £28k and remortgaged in 2003 for about £58k to repay all my debt (wouldn't be possible now!), at the same time I reduced my term by 7 years, over the years I've reduced the term by an extra year or two and will now be mortgage free by 2014 at the latest, the only credit card I have now is a 0% card for stoozing.

It can be done but I would think very seriously and have a plan set out as to how you are going to offset the extra interest etc.

Good luck.

Sam

thetigerwhocametotea

Thanks for your replies. By overpaying the £25k at the rate we intend to we should have paid if off in 7 years.

My husband says he's worried that something else will crop up and we'll decide we can't afford to overpay as much each month and so on and so on. I can see where he's coming from, but to be honest I'd just like to get rid of the debt while we can.

We live in a huge house and I cannot see us still being here in 10 years time when we will have no children left at home. Our intention would be to downsize substantially then, and buy a house outright so any outstanding debt would be cleared then anyway.

I suppose what I want is someone to say, yes, it's a good idea, go ahead!

Rikki

Are you likely to put this on the mortgage and then continue to run up debt and end up in the same situation. Many do you will have to be very strict with yourselves.

Personally its not something I would do. I would just throw as much money at the debt as I could.

Comyface

Sorry tiger, I'm inclined to agree with your husband (and Rikki). Throw as much money at the debt as you can, starting with the most expensive ones.

I would only increase my mortgage debt if it had something to do with the house (moving, improving etc.).

A_Nice_Englishman

thetigerwhocametotea wrote: »

Thanks for your replies. By overpaying the £25k at the rate we intend to we should have paid if off in 7 years.

My husband says he's worried that something else will crop up and we'll decide we can't afford to overpay as much each month and so on and so on. I can see where he's coming from, but to be honest I'd just like to get rid of the debt while we can.

We live in a huge house and I cannot see us still being here in 10 years time when we will have no children left at home. Our intention would be to downsize substantially then, and buy a house outright so any outstanding debt would be cleared then anyway.

I suppose what I want is someone to say, yes, it's a good idea, go ahead!

But you wouldn't be getting rid of the debt, just moving it from one place to another. In fact you'd be increasing it to 'have a bit of work done to the house'.

tiff

Can you transfer some of the debt to a 0% card? Then pay that back within the 0% term?

Clearing debt isnt instant, it takes a lot of hard work and sticking to budget. I like to think my DH and I are reformed serial debt consolidators, we havent cleared it all yet but we have worked hard at sticking to budget and trying to earn extra money to pay off our 0% card. Its going to take until the end of this year, but you start to feel better about the situation quite quickly because you can see the debt reducing and therefore, light at the end of the tunnel.

Procrastinator333

Also check what gets paid off first. If you make an overpayment, maybe it comes of the BOE+0.99 until that is clear and only then pays off the 5.19%.

This can only be worth doing if you stop taking on more debt. But as someone has pointed out you seem to be engaging in the classic consolidation cliche of putting al the debts together and then borrowing a bit more.

Why not solely consilidate the existing debt and then start saving for your home inprovements?