Did i cheat?

GettingThingsDone

I think there's a bit on the snowball calculator which shows you how much extra (roughly) you'll end up paying in interest because the payments are now spread over the life of the mortgage. Danger - can be eye-watering.

I'm in my late 30's and I think our generation are just getting to grips with the fact that inflation isn't wiping out our long-term debts like it did our parents.

tyllwyd

Looking it from the other point of view, if someone new had come to the board for the first time today and posted that they had no debt on credit cards, a mortgage of X amount to run for another 15 years where they could comfortably afford the repayments out of their salary, and equity of £146,000 in their house, would you have counted them as debt free or not?

climbgirl

tyllwyd wrote:

Looking it from the other point of view, if someone new had come to the board for the first time today and posted that they had no debt on credit cards, a mortgage of X amount to run for another 15 years where they could comfortably afford the repayments out of their salary, and equity of £146,000 in their house, would you have counted them as debt free or not?

More than likely, yes. The OP can obviously comfortably afford the higher repayments on the mortgage, no problem there.

But that's why doing what they did makes no sense - why put unsecured debt that you're not paying interest on and are comfortably overpaying each month, onto your mortgage so that you will pay interest on it and (depending on the terms of the mortgage) may no longer be able to overpay to the same extent and flexibility?

It doesn't make any financial sense, just costs the OP money in the long run.

GettingThingsDone

I've been a bit 'slow' on this one - I agree with climbgirl 100% now. It wasn't a DFW move - almost the opposite. No offence to the OP, but I think you did the 'wrong' thing there.

Obviously you have enough to cover the costs, so day-to-day its not a problem, and you haven't 'cheated' as such, but if look at it as a separate loan to your mortgage (kinda running alongside), then you've just extended the term from 4 years (or whatever your overpayment estimate was) to x years (however long your mortgage is) + the appropriate amount of interest.

And along the way, you've converted it to secured debt.

Putting the morals/emotions to one side, I don't know why you did that.

However, there is some satisfaction to be had from paying something off, and that feeling can drive you on to keep going. Sometimes, if you have to wait too long for something it's easy to get disheartened and give up, go shopping and go into a negative spiral...

GettingThingsDone

Sorry to bang on, but the more I think about it, the more non-MSE it is. This is exactly what the banks and lenders want us to do i.e. to confuse us with alleged simplicity so that they earn more in interest payments.

I know we're not supposed to be judgemental etc in here, but the OP is literally just giving money away.

Mori - can you give some figures to say how much extra this is costing you? I'm guessing that it's going to be a few grand.

climbgirl

GettingThingsDone wrote:

Mori - can you give some figures to say how much extra this is costing you? I'm guessing that it's going to be a few grand.

It's hard to know that exactly - it depends very much on the 0% deals, how long they lasted, what the OP would have been able to card tart the debt to, how much the mortgage rate is, what the flexibility on overpaying the mortgage is, etc, etc.

As another poster said, people view "releasing equity" as another form of income these days. It's a risky path to take...

tyllwyd

climbgirl wrote:

It's hard to know that exactly - it depends very much on the 0% deals, how long they lasted, what the OP would have been able to card tart the debt to, how much the mortgage rate is, what the flexibility on overpaying the mortgage is, etc, etc.

I agree that you can't make a real assessment of the impact of the decision without knowing all of those things. If you are paying £14,000 at a rate of £500 per month, then even at 0% it will take 28 months to pay off, so those 0% deals are going to start running out and you are looking at finding new deals and paying balance transfer fees. Without knowing the actual figures, there is a danger of over-simplifying things.

climbgirl

tyllwyd wrote:

I agree that you can't make a real assessment of the impact of the decision without knowing all of those things. If you are paying £14,000 at a rate of £500 per month, then even at 0% it will take 28 months to pay off, so those 0% deals are going to start running out and you are looking at finding new deals and paying balance transfer fees. Without knowing the actual figures, there is a danger of over-simplifying things.

Oh very much so, but it's not just about the numbers (although chances are the OP will more in the long run). It's about securing unsecured debt to your house too - yes, the OP is comfortably making payments now. But what if they lose their job tomorrow, what happens then? Suddenly the house is at risk if there's no back-up plan.

And the OP says they'll make overpayments on teh mortgage to cover the loan. That will depend very much on the terms of the mortgage, any overpayment penalties, even if they can overpay it.

I don't see why they did it, apart from having a smaller unsecured debt number to play with. It's just made things overly complicated for no reason - they were comfortably overpaying, the debt would have chipped away nicely. If they weren't able to make the repayments on the credit cards, releasing equity in this way might have made more sense. But this wasn't the case here!

GettingThingsDone

I think the 'error' (trying to be non-judgemental ) is one of perception.

The OP was viewing her debt as two separate debts and gets some piece of mind by paying extra to make it into one debt. Mori - quick question, did you get a KFI without the extra and a KFI with the extra? You should be able to see the exact cost of the extra loan is.

Another way of looking at is that there is a single amount of money owed; allocate what part of your budget you can afford to pay/overpay on debt, and then as a separate exercise allocate those funds appropriately e.g. use the snowball calculator for assistance.

As I understand things, the second way is the MSE way.

However, the fact is she hadl her debt on 0%, was overpaying and has bags of equity in her property - hats off to you!

tyllwyd

climbgirl wrote:

It's about securing unsecured debt to your house too - yes, the OP is comfortably making payments now. But what if they lose their job tomorrow, what happens then? Suddenly the house is at risk if there's no back-up plan.

Yes, I take your point - but again, I'd say it wasn't quite as cut and dried as that. If she loses her job tomorrow, she will struggle to make her mortgage payments anyway, so whether her monthly payment is X or X+Y, the house is at risk. And even if she could cover her mortgage payments, if she defaults on her unsecured debts and it gets as far as bankruptcy, creditors will try to get their hands on the equity in the house.