To extend or not extend the mortgage?

mary

We purchased a bit of extra garden behind our house about 4 years ago and added to our mortgage, which is due to be paid off by Sept 07. However at the same time, the guy at the bank suggested that we also took out a Mortgage Reserve Account, so that if we wanted to buy a caravan, boat or whatever, we could do that as well, we would be charged the standard variable rate. We had a ceiling limit around £65,000 and we could borrow as much or as little as we wanted provided it was all paid back at the same time as the mortgage.

That’s when things started to go wrong. My husband decided that he would like to start a business venture overseas in his home country. He borrowed this money and bought some agricultural machinery, set up a store, took on one or two staff, had the usual setting up a company overseas expenses etc. As could have been predicted things didn’t go according to plan. The items sold much more slowly but did eventually go, bought a second container and finally when that was slowly selling, ordered a third one and at the same time diversified into transport, as there was not much like it around at the time. My opinions were asked, but ignored! Politics got in the way, elections etc. etc. So, now the amount outstanding is £61,524. I cannot see anyway that this will be repaid by Sept 07.

I do have the proceeds of the Endowment Policy sitting in a high interest savings account, which will pay off most of the original mortgage Sept 06, leaving a small amount outstanding of £2,000 for the period 06-07. The problem is the £61K.
The current standard variable rate is 6.59% and the interest is mounting every month, with no repayments coming in from overseas, as the market has gone dead. Husband is age 60, wanting to retire, but I have told him that until this fiasco is sorted, he can carry on dreaming. He earns around £26,000 and I earn around £15K (but mine is used to pay tuition fees for our youngest at independent school), Realistically I cannot see my husband taking on a second job. We have 34 items @ £906 and 51 items @ £500. Do we hugely sell them at a loss (say sell them at 2/3 their value), just to get some of the money back and then add the remaining debt and consolidate it into the mortgage from Sept 07. Or do we do something in Sept 06? I have used the mortgage calculator on https://www.whatsthecost to get an idea and it seems that if we extended the mortgage for 10 years with this extra £61K debt, our repayments monthly will be around £700, whereas it is a struggle to repay our current £248 + £145 (previous endowment amount – which I’m continuing as if we still had it, so as to reduce the mortgage on the house and currently saving it in a savings account until Sept 06)

I guess what I’m asking is it better to reduce the price of the goods considerably, working on the assumption that they will then sell, and therefore pay off larger amounts earlier and know that there will be a shortfall or wait holding on hoping for the current sales price, which gives us a profit of just a bit above break even point for higher sales, but running up extra interest each month of £350, which is compounding whilst waiting.

Any suggestions welcome.

silvercar

Sell them off cheap!

If you hold on to them and pay interest on the loan until you get the price you want, you will have netted the same amount.

A bird in the hand.....

fez_2

I agree.

And needs must. Kids to comp!!!

One other thing. The banks suggestion is correct, the ability to borrow at mortgage rates. However, given your proximity to retirement at the time and your income, could you reasonably have been expected to afford repayments on the full loan (assuming the adviser didn't know about the business venture), especially into retirement. Did you receive advice or was it your decision to borrow more? If advised you may have cause for complaint.

mary

fez wrote:

The banks suggestion is correct, the ability to borrow at mortgage rates. However, given your proximity to retirement at the time and your income, could you reasonably have been expected to afford repayments on the full loan (assuming the adviser didn't know about the business venture), especially into retirement. Did you receive advice or was it your decision to borrow more? If advised you may have cause for complaint.

On the original mortgage, we were able to repay, but it was husband's decision to borrow more from the reserve account (it's like a flexible cheque book), it even started off with him lending £5,500 to his brother overseas to help him out with his civil engineering business. Still 2 1/2 years later, we are waiting for it to be repaid. Intentions may be there, when reminded but money isn't. Needless to say these things don't help the old marriage. I'm seen as too organising and interfering but my concern is that by default as the mortgage is in joint names on the house, so is this reserve account as well, therefore I am equally liable!