To Second Mortgage or Not to Second Mortgage

gravitytolls

Okay, deep breath. We are in a bit of a predicament.

We owe a relatively small £53000ish on our mortgage with 17 years left to run.

We owe app. £35000 in one secured £7500 loan, a £6000 unsecured loan and various credit cards. The loans and card debts were run up partly through the extension we built being a never ending pit of cash noshing work (but now complete), and partly through unfortunate circumstances (MIL hospitalised, dying and DH's time off work due to ill health), and partly through sheer stupidity and burying heads in the sand.

Payplan recommend offering £1 per week to creditors until circunstances improve. This will obviously have significant impact on our credit rating.

In the meantime, our mortgage broker contacted us to say, that now we are coming out of our redemption period with the council, we could move mortgage companies, pay the early redemption fee, and still save money.

Of course, now he knows how bad our finances are, he has looked at things from a different angle.

He feels that a second mortgage, to tide us over until our contracted time with existing mortgage lender is up, then move the whole thing to a better deal, is the way to go. He suggests this because (he has a vested interest in our remaining credit worthy enough to get mortgage offers) we have very significant equity in the property, maybe £150000. He feels that rather than play ball, the creditors/some of them, may prefer to apply for a charge to be put on the house, or sue us, thereby forcing us to sell, as we have so much equity.

Payplan actually suggested something similar, in that they suggested selling up and moving, for similar reasons.

Well, to be honest, moving isn't a favoured option, as we have 7 children, and are seriously unlikely to find a 5/6 bedroomed house that we can afford.

However, all my instincts kick against a second mortgage.

Our income is around £1800 PCM.

Our direct debits are around £1000 PCM, this of course, includes the 2 loans.
Our outgoings are pretty high, as we are many.
I am going to sell the minibus, get something cheaper and more economical both to run and insure; thought th ebus itself is only worth about £800, but the insurance is cripplingly high.

Well, what do you all think?

MortgageMamma

What are you incomings and outgoings(total figures including wftc)
when is your preemption period up?
are there any early repayment charges on your mortgage after this date or are you free to remortgage?
Is you mortgage advisor whole of market?
Do yu receive wftc (this can be counted towards income with some mortgage lenders)
How much debt in total, including the mortgage do you have?

Chortle_2

Adding unsecured debt to mortgages is often not the best way to go, and if you are struggling now, what happens if you struggle in the future, put the odd thing on another CC, and run even some of the debt up again? You'd end up losing your home! And that is without the fact that repaying the same debt over a much longer period will increase the interest you are paying considerably.

You'd need to give us more information though, before we could really advise on your situation - see this post on how to post a statement of affairs. We might be able to find you another way

You know that your mortgage broker has a 'vested interest' in your future credit worthiness, but I assume he will also be making commission from both the second mortgage, and the future remortgage he is proposing. I'm not saying that he is putting his commission above your best interests, but well... it is something to consider

CLAPTON

why not post a SOA statement of affairs so we can see the whole financial picture
see the sticky at the top of this board 'first time posters'

gravitytolls

OK, here goes.

Income:

751.96 PCM wages
804.88 PCM tax credits
303.80 child benefit

Total1860.64

Outgoings
mortgage 453
council tax 99
water rates 39
electricity 65
heating solid fuel 60 PCM average
phone 24
isa 60 (I know we should cancel this)
loan 1 135 (secured 6 yrs left)
loan 2 123 (unsecured)
home insurance 28.68
life insurance 10.98
sky tv 36 (we will get rid)
tv licence 11(ish)

Um, I think that's about it, but I will update when I check the bank account.
Obviously food, clothing, shoes etc. comes out of what is left.

DH is currently not working due a back injury. He is hoping to return very soon, and is becoming somewhat depressed in the meantime.

I have called tax credits regarding more help, due to reduced income. I have also contacted disbaility helpline, as he was diagnosed with curvature of the spine, bone erosion and arthritis of the spine last year. I don't know how that will go though, as DH is feeling rather anti being classified as disabled.

Many thanks to those can offer advice or solace.

dinkylou

Gravitytolls,

Thats a great start but we could do with a little bit more information.

Could you post your debt amounts along with APRs and how long they have left. This includes all credit cards.

Also you have nt included any cars? Do you have any?

Also, it would help us if you know how much per month you spend on food/clothes/entertainment/other expenses as then we can work out how much 'spare' you have for your debts.

Will help where we can.

x

lynzpower

Hi there

Right, a few things. You need to check if you are able to overpay any of these loans, without some mental "redemption" or "early settlement fee". In fairnness some of these clauses make it pointless to try adn over pay. Do check this out.

A spending diary & meal plan will help, you say it comes out of whats left, but this used to mean to me, borrowing the money from somewhere.
Call sky. Threatening to get rid often gives you a better cheaper deal for a few months, personally, I say get rid entirely. You can get digital TV instead for free.

Phone- 24. Again pretty high, what is that covering

Do you not have to pay bus fares or run a car?

How much is in your ISA at the mo?

Have you looked into getting council tax benefit? You might be able to if hubbys not working?

You are spending a LOT on heating. I dont know much about solid fuel, so I'll leave that, but 65 a month is a lot for electric, we arnt even paying that and thats the ONLY power we have,m no gas. Try https://www.energysavingtrust.co.uk to see what you can get and other ideas about energy efficiency. Have you lagged your boiler? Have you insuralted your loft? Have you checked your window frames? Lots of stuff on that website, do check it out.

gravitytolls

Yes, cars, we do have them.
John has an old diesel estate, as he works all over the county, and needs a car. We are currently spending £50 PCM on fuel, when John has returned to work, he will get help from his employer with costs.
I have a minibus, as we have 7 children. We are selling that, and going to get something cheaper to run and insure and to buy. I need a vehicle, as the transport system is virtually non existent. My FIL is elderly and disabled, my parents both work, which menas if I were to have an emergency, or needed to collect a child from school etc., I'd be unable to do so, without calling a cab. The cheapest cab to the catchment area high school is £10.

Buses are not a viable option, as there are very few in th evillages, and the service has just been cut to twice a day.
The children don't get the school bus, as they attend the nearest school, but it is not the catchment area school. i am unwilling to change schools, as the other has a serious bullying problem, and has had for several years.

Debts:
Lloyds tsb cc - £14000
Lloydstsb amex cc - £5000
LPF cc - £2500
Homebase cc - £ 2000
Alliance and Leicester cc - £2000
Alliance and Leicester unsecured loan - £5000
Lloydstsb secured loan £6000
All figures are approximate, and perhaps slighlty overestimated.

I have called benefits helpline today. They advise applying for DLA, as the back injury and arthritis of the spine would qualify (possibly) for some additional help.
I have claimed on th einsurance policy for the secured loan.
I am getting forms for 'Counci tax benefit.

The electricity is high. The house has been extended, some of the heating is electric, coal is very expensive; the cheapest is £83 per half tonne, and that last about 3 weeks. Last year we spent about £590 on heating the house.

Paypal advise offering and sending £1 payments to all creditors, with an explanation. Mortgage advisor suggests they won't accept or want to help, as the house has available equity.

CLAPTON

your SoA says your income is £1,860
and your spending including the loans but not the CCs is £1,084
leaving surplus of £774 to pay the CCs
you dont show the minimum cc payments but the total cc debt is about 25,000 which usually means repayments about £625 . so is there something significant thats been left out ?

gravitytolls

The surplus of £774 covers food, clothing and other costs that keep the family going.

Payplan have looked at the figures and suggest paying £1 to each creditor, with an offer of the same each month, asking for a paying in book or standing order to be set up. They say that if no matter how unfavourable their reaction, so long as we don't miss a payment, there is very little they can do.

How little is little? Does anyone know?

Please understand, we are in no way trying to duck out of meeting our commitments, we spent it, we must pay it. It's simply that circumstances are bad at the moment. DH may end up requiring spinal surgery, and he will obviously require caring for until he is much improved.

When our circumstances are improved, either through him having improved health, or me retraining to get back into the workplace myself (yes I'll shelf stack in the meantime, but whilst John is unable to care fo rth ebabies as well as himself, I'm still at home) we will be improving payment offers, until we are able to get back on some sort of even keel with everyone.

In the meantime, any advice is highly valued.

lynzpower

A couple of things strike me here, mainly to do with your OH and your FIL. Are you doing any caring for them - partic your hubby? If so you may be entitled to carers allowances. Look at https://www.entitledto.co.uk

As I mentioned before a spending diary is a must. If you dont, you'll never be able to set a budget that works. You say clothes, food etc comes out of whatevers left, but how much is that? Chances are, and Ive done this myself, are you sticking the food, dental, petrol, clothes, whatever on the credit card? Have you cut the cards up?