Is remortgaging really bad?

Hootie19

I have had some excellent advice on an earlier thread I started, and my latest SOA is in this post here:
http://forums.moneysavingexpert.com/showthread.html?p=2784195#post2784195

However, it *is* now a very very tight budget, and leaves no room for emergencies.

We spent an hour on the phone last evening with a mortgage broker. Things stand like this at the moment:

Our current mortgage balance is a shade under £99,000. We have two missed payments.
Our house, we reckon by looking at the local papers, is worth around £185,000.

Our income is £2,827 a month.

We have a CCJ/2nd charge on the house for our old central heating loan. The balance on that is about £4,600. We repay that at £35 a month.

Our credit cards:
Capital One credit card - balance £853, being repaid at £30 a month
Tesco credit card - balance £815 being paid via a collections agency at £50 a month
Lloyds TSB visa - balance just under £1,100, being repaid at about £30 a month
Sainsbury visa - balance £2,885. My husband’s card and he’s totally out of control with it - head in the sand time - and is way behind with payments. *Apparently* he now has an agreement with them to repay at £70 a month.
Barclaycard - balance £1,300, being repaid at around £30 per month
Smile visa - balance under £500. Repaid at about £25 a month.

All our credit cards have been put through our shredder!

I have a £600 overdraft on my current account, my husband has a £500 overdraft on his. Both are used fully each month.

Right.

The broker has offered us a remortgage. Including their charges/fees etc, the amount borrowed would be £120,775. The second charge would have to be repaid off - that's a condition, which we're fine with. There will also be money to pay off the credit cards, plus to pay for the installation of new windows and doors, and guttering - all of which are *badly* needed (and which hopefully should help reduce the frighteningly high gas/electricity monthly DD.)

He's going to put the figures in the post to us, but essentially, if I understand it properly, from my scribbled notes, it looks like this:

If we took a remortgage with a tracker rate of interest (6.54%), over 15 years (which is three years longer than our current mortgage), then the cost would be £1,054.52 per month.
If we took a fixed interest mortgage, fixed for three years (the tie in time), over 15 years, then the cost would be £995.62 per month (5.64%). After the three year fixed period has ended, it would be £1,044.19 per month (6.54%).

If we took the tracker mortgage over 12 years (our current mortgage term), the cost would be £1,212 per month
If we took the fixed rate one, over 12 years, it would be £1,054.52 per month.

Obviously, on the face of it, the fixed interest with a 15 year term would look to be the obvious solution. We would be paying £995.62 a month with NO extra payments for credit cards etc.

The broker also said that if we "kept our noses" clean for three years, when the fixed term expired, we could then go to high street lenders (as opposed to those who specialise in poor credit history) and remortgage with a lower interest rate. Not sure, given we have a CCJ/2nd charge, if this is right though?

Am I really missing something obvious? Apart from having a HORRIFIC mortgage, can you tell me why we shouldn't go with the fixed rate remortgage over 15 years at £995.62 per month. I know that in the long run, it will cost us a lot more to repay the full amount, but I'm looking short term here, and we really need to relieve our purses at the moment, so having more money available now is more important to us than thinking long term and how much the mortgage would eventually cost us to repay.

The remortgage would be with I-Group (phonetic, it could be Eye Group etc!), which he said is part of GE Capital. (Don’t know if that’s relevant.)

Jessiepig

Hi I think the usual advice would be do not do it. But you are in such a pickle that I think the fixed rate would be your best option.
This would put you back on the straight and narrow and your monthy income seems more than enough to pay the nornal outgoings of life.
However this wll only work if you do not incurr anymore debt,i.e credit cards,loans, finance agreements or going over drawn.
I would say that you could do this and still tighten your belts oin order to get some savings behind you and then possibly use this against the mortgage in the future.
I am sure somonelse will give different advice and I am no expert but i hope that this helps.

TallGirl

Don't know much about mortages but I Group are known to be quick to take action if payments are missed. Perhaps you should try the mortage board for this query

CLAPTON

as i see it

your SoA says

income 2,827
spending 2,402

balance of 425 available for debt repayment

debt repayments 295 (you dont add then up but i think that about right)

so this leaves you with 130 truely spare....so doesnot seem all that tight really...where does it go?

combining this with your two other comments

quote 1 ' ..... My husband’s card and he’s totally out of control with it - head in the sand time - and is way behind with payments. *Apparently* he now has an agreement with them to repay at £70 a month.' end of quote

and
quote2 ' I know that in the long run, it will cost us a lot more to repay the full amount, but I'm looking short term here, and we really need to relieve our purses at the moment, so having more money available now is more important to us than thinking long term and how much the mortgage would eventually cost us to repay.' end of quote 2

and your new mortgage will come out at arround £134 more than you pay now so you will only be 160 'better off' each month.

remortgaging seems to me to be courting financial disaster, with only a temporary respite in your situation because i dont really think you have your spending fully under control

i think that you really ought to spend at least six months really living within your current income....there seems plenty there if you really want to do it. then review whether or not to re mortgage when you KNOW you can live within this budget and wont be tempted into more debt.

robnye

well said clapton

remortgaging is good as long as the reasons for it are clear, (ie moving, building work), if it is to consolidate existing debts as well, then you must have a workable budget in place, otherwise 2/3 years down the line, you will still have the increased mortgage and possibly have new debts..........

looking at the mortgage options, personally i would go with the lower payments (longer term), then as suggested throw any extra at the mortgage.

take a look at one of the mortgage spreadsheets (cant remember where they are), and see what happens to the final pay off date, when you throw extra payments at it

Hootie19

Thank you all - this is why I posted here. A clearer set of heads could see much easier than I could the pitfalls.

Thank you re the info about Igroup and missed payments. While we obviously have no intentions of missing payments, it's always useful to be forewarned as to how lenient a lender is if it does happen.

And again, obviously we have no intentions of running up further credit. I don't think we could, even if we did want to, with the credit history we have.

And although we end up with what looks like a reasonable amount of money each month, it has to "service" five people, and really just seems to disappear into the ether. (We have all started keep detailed records of our spending, so I expect this will become clear sooner or later.)

Now that I've seen other peoples' input, I think another major rethink is on the cards before taking the plunge.

moriarty888

Hi there,

Your situation is similar to mine, I posted last night and am still not sure which option to go for. One thing though, if I do remortgage, a credit card or loan will never darken my door again, and I won't see it as free money. I will become the most frugal saver this site has ever know (well, that might be a little bit of an exaggeration....) So the point I'm trying to make is, can you be sure that you won't get into debt again, and more importantly can you wrestle that credit card from your OHs hands....

http://forums.moneysavingexpert.com/showthread.html?p=2831104&posted=1#post2831104

Bloke_with_a_simple_life

Remortgaing in itself is not bad - depends what and why you are doing it. I recently remortgaged - but that was to lower the term of my mortgage and reduce the amount I was repaying. Not to increase the amount I borrowed or increase the number of years I was repaying it back.

Remortgaging to extend your debts further and longer, without addressing and correcting the reasons about why you went into debt is a disaster and something to be avoided - unless you want more problems.

Simple answer - spend less, stop increasing your borrowings, repay more.

CFC

Hiya Hootie, unless your doors and windows have fallen off and left great gaping holes in the wall, when you are so strapped for cash that you're having to increase your mortgage to keep your head above water, I can't recommend that you borrow money to spend on your house.

If your windows are going a bit rotten, then paint them and fill them. If they're draughty, draught proof them. If you borrow money when you're already up to your neck to spend on things that are a 'nice to have' rather than a 'must have because there are none' you are heading yourself down that primrose road again because you have still not come to real terms with your real income vs your expected standard of living. I know you say that the money doesn't go very far. No it doesn't, so you need to mentally adjust to having an even more basic standard of living. There are no magic answers.

Spending on your house is NOT an investment if you have no means to sell and leverage a higher loan for the upward cycle etc. It's simply spending money.

As for remortgaging and paying off the debts (and NOT borrowing enough to go spend on anything else) it may well be an option, but only provided, as other posters have pointed out, that you have lived within the proposed budget, as per Clapton, bloke with simple life and jessipig.

Sorry babe, but them's me thoughts.

rog2

Hi,

You have been given some very good, but sometimes conflicting, advice. I am not sure what I would do, in your position, but I would consider the following:
1. Current Value of House, and size of current mortgage.
2. How long you intend to stay there.
3. Effect of re-mortgaging on term of mortgage.

House prices are still defying logic and holding up well, but as with any investment, this could change. I remember the days of negative equity, but markets always recover, and if you consider your mortgage as 'rent' then you generally will not lose.

But, if you do re-mortgage, then will you be able to resist the temptations of the dreaded credit card?

You could try the local council to see if there are any grants available for Home Improvements.

You also say that you have been advised by a 'Broker'. Be a little bit wary of his advice, and check every other option. If there is sufficient equity in your house, then many high street lenders WILL consider you, even with bad credit history - you may pay a little more interest, but it is usually easier to change a 'high street' mortgage further down the line.
My own mortgagor (Halifax) did offer me a 're-mortgage', which we did not take, but at least it showed that they were prepared to consider us (I have a HORRENDOUS credit history) so why not talk to your own mortgage company, before making any decisions?

Good luck
Rog2

Jessiepig

I have to say that I do agree that remortgaging to clear debts is not good,been there done that, wont do it again but sometimes it is the best option.
I do think that spending money to improve a house i.e windows then this could be regarded as an investment as it will improve the value of a house.
However the value of any house is only relevent when looking to sell.