Add CC debt to mortgage?

spirit

Hi,

i'm about to move house and take out a smaller mortgage (I'm downsizing). I've got about 2.5k on Barclaycard - can't remember the interest rate offhand. Is it worth borrowing slightly more on the mortgage and paying the CC off completely or just paying more per month on the CC when i move as i will have more disposable income please?

---lee---

Could you not instead apply for an 0% CC and transfer the balance from Barclays over to it? That way, you can pay off your debt without paying interest.

There are plenty listed here, along with quite a few that don't charge any balance transfer fees.

http://www.stoozing.com/0fees.htm

Alternatively, you could apply for a low life of balance card and transfer the debt there. You would still be paying interest, but at least it would be at a more reasonable rate. If you give them a call, Barclays may be prepared to reduce your rate.

If you add this debt to your mortgage, you will be paying for it for 25 years or whatever the term of your mortgage is, so I would suggest avoiding that at all costs.

spirit

Hi Lee,

thanks for info. I am guilty of being a CC tart (moving it over to other CCs to expoit 0%). I didn't realise by doing so at the time that each time you do that, a search goes on your credit record and if you tart regularly, it doesn't look good. Barclays put me on the low life of balance rate (wish i could remember the rate but am at work & don't have the info to hand). so that's why i wondered if it would be cheaper to shove it all on the mortgage, but if it isn't, i'll just make overpayments (once moved) to clear it quicker i think.

nomoneytoday

If you put a cc balance on the mortgage, just think you will be paying for that chinese takeaway for 25 years :eek

spirit

Eek indeed, that's certainly one way of looking at it!

spirit

so if i want to say re-do the kitchen and put on a small conservatory for instance. that i shouldn't put that cost on the mortgage either?

---lee---

That’s up to you mate. I can see why you may consider a kitchen essential, and a conservatory would be nice. Do you really want to pay for it all over 25 years though? Personally, I want to pay off my mortgage earlier, not later.

Here's an example. Assuming your mortgage is for £ 50,000, over 25 years @ 7%. You would repay £ 106,016.88 over 25 years – that’s £ 56,016.88 in interest alone.

If you decide to add £ 2,500 to your mortgage to repay your Barclaycard, you would repay a total of £ 111,317.72 over 25 years – that’s an additional £ 5,300.84.

If you added say £ 20,000 to your mortgage to pay off your card, get new kitchen, conservatory etc, you would repay a total of £ 148,423.63 – that’s an additional £ 42406.75.

I’m sure you can see the trend here!

On the otherhand, say you got a loan at 14% over 2 years to repay your Barclaycard, your would repay a total of £ 2,880.77. Even though the interest rate is much higher than a mortgage, you pay less interest because the term is much shorter. I’m sure you could get a loan with a lower APR than 14%.

All my figures assume that the interest rate is fixed. That’s very unlikely over a 25 year period, so at times the payments will go up and you will pay more interest and at other times, the interest rates may drop and you will pay less. Loans are usually at fixed interest rates. Mortgages are usually variable unless you get a fixed rate one.

Cheers.

humfer

spirit wrote:

Hi,

i'm about to move house and take out a smaller mortgage (I'm downsizing). I've got about 2.5k on Barclaycard - can't remember the interest rate offhand. Is it worth borrowing slightly more on the mortgage and paying the CC off completely or just paying more per month on the CC when i move as i will have more disposable income please?

Although adding it to your mortgage sounds like a good idea because your mortgage rate will be around 4.5 - 5% remember that will be over 25 years, so the debt will probably double long term. Like some of the others on this thread suggest maybe transferring to a 0% balance transfer card may be the best option overall

lisyloo

so if i want to say re-do the kitchen and put on a small conservatory for instance. that i shouldn't put that cost on the mortgage either?

A conservatory or kitchen will last longer than a chinese takeaway or a tank of petrol.
However you should be aiming to pay ALL debt off as soon as you can.

A lot of mortgages will allow you to make overpayments so the sensible way to do it (if you don't have penalties) is to get the best rate you can (which may well be the mortgage) then pay if off as quickly as possible.
As others have said it doesn't make sense to pay the debt over 25 years.

The maths is that 25 years at a low rate can be MORE interest than 3 years at a high rate.
The optimum is low rate and quickest as possible.

Note: That if you are planning on overpaying your mortgage you need to check that you have daily/monthly interest calculation (not annual) and that you won't have to pay penalties.
If you can't find the information in your paperwork then give your lender a call.

jamesd

If your mortgage is a flexible one that allows overpayments of the card balance and if you repay the card balance quickly, as if it was stil a credit card balance, putting the money on the mortgage is likely to be a good deal. How good depends on how much lower the mortgage interest rate is than the credit card interest rate. If it raises your mortgage interest rate because it increases the percentage borrowed compared to the value, it may be a bad idea.

The previous posts about putting it on the mortgage being more expensive only apply if you pay it over a long mortgage term, not if you overpay to remove it from your mortgage balance quickly.

The reduction in interest rate should also make it possible to reduce the debt more quickly.

It's up to you to decide whether you'll be able to treat it as if it was still credit card debt and pay it off as quickly as if it was still debt on the credit card. Only do it if you will.

lympus48

A really interesting discussion and so relevant to those who remortgage to lower rates as I did to 4.25% and are tempted to consolidate credit card debts and say move upto a better car. In my case my mortgage is only 9 years as like many folk in their fifties I willwant it completed in my early 60s ; so I suppose my question is - over what shorter period of time does it become more cost efficient to use mortgage funds for paying for these types of debt.

By the way I do not believe paying off debt like this saves all problems; as soon as people have a clean sheet they start putting holiday flights on credit cards etc., and the whole debt build up restarts.