Re-mortgage for credit card debt

hiltop

Does anyone else think it is a good idea to release some equity from a property to pay off a card. I'm looking at around 10k to borrow. Rates will no doubt be cheaper.
Thanks

onlypaddy

Rates may be less on paper, but you will be incorporating it into your mortgage which takes a lot longer to pay off. For example:

£10k on a card at 20% apr, paid over 4 years or so at around £300 a month would cost around £4.5k in interest.

The same £10k incorporated into your mortgage at approximately 5% for 25 years would cost around £8000 in interest.

It may look more tempting because it takes the monthly payment off your monthly outgoings, but it will ultimately cost you more money in the long run.

Also, in general it's not a good idea to pay off unsecured debt using debt secured on your house. Worse case scenario if you default on the card is that you will possibly go bankrupt for a year or so. If you default on the mortgage they will take your home.

rfowler

I agree with onlypaddy, don't remortgage as you will pay much more in the end!!!

CLAPTON

how much
apr?
how much can you pay per month

Degenerate

onlypaddy wrote: »

Rates may be less on paper, but you will be incorporating it into your mortgage which takes a lot longer to pay off. For example:

£10k on a card at 20% apr, paid over 4 years or so at around £300 a month would cost around £4.5k in interest.

The same £10k incorporated into your mortgage at approximately 5% for 25 years would cost around £8000 in interest.

It may look more tempting because it takes the monthly payment off your monthly outgoings, but it will ultimately cost you more money in the long run.

You're basing this on the assumption that after doing it, the OP only pays the basic monthly repayments over the full term. One also needs to consider inflation to assess the true cost of the debt in real terms - it can be significant over the term of a mortgage. Mortgage lending is the cheapest form of credit available (excluding short term credit card tempter deals), so it can make sense to do this if you also overpay the mortgage by an appropriate amount to avoid stretching the debt over too long a time period.

Also, in general it's not a good idea to pay off unsecured debt using debt secured on your house. Worse case scenario if you default on the card is that you will possibly go bankrupt for a year or so. If you default on the mortgage they will take your home.

This is nonsense, if you go bankrupt your assets are liquidated anyway - including your home. Unsecured creditors are increasingly using charging orders as a means to recover debt as well. There is no legal way to keep your assets safe whilst defaulting on debt.

onlypaddy

Degenerate wrote: »

You're basing this on the assumption that after doing it, the OP only pays the basic monthly repayments over the full term. One also needs to consider inflation to assess the true cost of the debt in real terms - it can be significant over the term of a mortgage. Mortgage lending is the cheapest form of credit available (excluding short term credit card tempter deals), so it can make sense to do this if you also overpay the mortgage by an appropriate amount to avoid stretching the debt over too long a time period.

Yes, I've based it on that as a rough example - but it's safe to say that OP is looking to reduce monthly outgoings, so would not be majorly overpaying. Mortgages aren't the cheapest form of credit by a long shot

Degenerate wrote: »

This is nonsense, if you go bankrupt your assets are liquidated anyway - including your home. Unsecured credits are increasingly using charging orders as a means to recover debt as well. There is no legal way to keep your assets safe whilst defaulting on debt.

Ok, bad example using bankruptcy - I was just thinking of the worst thing possible with unsecured debt (do people go bankrupt on unsecured debt alone?). But to say that it's nonsense is a bit....nonsensical! Charging orders don't mean you lose anything there and then, but having your home reposessed means getting kicked out on your a$s

CLAPTON

onlypaddy wrote: »

Yes, I've based it on that as a rough example - but it's safe to say that OP is looking to reduce monthly outgoings, so would not be majorly overpaying. Mortgages aren't the cheapest form of credit by a long shot



Ok, bad example using bankruptcy - I was just thinking of the worst thing possible with unsecured debt (do people go bankrupt on unsecured debt alone?). But to say that it's nonsense is a bit....nonsensical! Charging orders don't mean you lose anything there and then, but having your home reposessed means getting kicked out on your a$s

one can be made bankrupt for a debt over £750

under bankruptcy all assets (including the house) are taken over by the OR (official receiver)

a charging order is quite different to bankruptcy

Degenerate

onlypaddy wrote: »

Mortgages aren't the cheapest form of credit by a long shot

Care to name the cheaper forms? (apart from short term credit card tempter deals, as I already acknowledged.)

Charging orders don't mean you lose anything there and then, but having your home reposessed means getting kicked out on your a$s

Charging orders turn an unsecured debt in one secured on your home, which can then be subject to reposession anyway.

Bankruptcy also results in repossession of your home.

There is essentially no difference in outcome for the borrower who finds themself unable to pay secured or unsecured debts - if you own your home, you will eventually lose it either way. The difference is to the lender - having the loan legally secured on an asset gives them first claim on it in the event of insolvency, ahead of other creditors, making it more likely they will get their money back. This is why they are willing to lend at cheaper rates.

onlypaddy

Student loans are the cheapest, strictly speaking....I know you meant mainstream credit though. I'm being obtuse.

My understanding of bankruptcy is better now too. As for charging orders, it was my understanding that this was an order secured against any money gained from selling your house in the future, not a forced reposession.

All in all, my knowledge is clearly outclassed here

Degenerate

onlypaddy wrote: »

As for charging orders, it was my understanding that this was an order secured against any money gained from selling your house in the future, not a forced reposession.

It is, but then they can follow up with a possession order to force the sale.