PLEASE LOOK ...remortgaging to pay off debts... good idea or bad?

thebaddeleys

Hi,

We have a repayment mortgage of £158000 at the moment and our house is worth £185000. We have £25000 of debt in various different loans all with an average of 7% apr. At the moment if my husband doesn;t earn any commision at work we end up being £400 short every month which is eating into our overdraft that is nearly at its limit. so we need to do something fast as we are going further and further into debt every month. should we remortgage and release the equity in our home to pay off the £25000 as is we add it onto the mortgage it will only cost us £142 a month whereas at the moment it costs us £600 plus which we can't afford. I don;t currently work as i;m at home with our one year old son. We do get all the tax credits etc that we are entitled to. should we move house to pay off debts and use the equity that way or remortgage, are there any other options? we need your help and fast! thanks.


House hold bills

Mortgage- 975.4
Mortgage Life cover- 24.38
House insurance- 30.35
TV licence- 10.59
Child maintenance- 270
Council Tax- 119
Talk Talk- 20
Tiscali- 15
Gas / Electric- 43
United Utilities- 39.68

Extra items

HFC (Dinning Table) 0%- 23.17
David Llyod gym- 55
Sky- 36
Blackhorse (TV) 0%- 43.77
Sofa (Blackhorse)- 50
Car (blackhorse)- 205

Tesco car insurance- 42


Loans

Abbey Loan (9.6%)- 163.13
Tesco loan (7.3%)- 252.09

O2- 60

Food- 200
Gold HSBC card- 35


Totals Outgoing-2627
Total income- 2891.24

the figures above may be slighty out as they are off an old post i've done before but from my numbers above them you get the idea!

please help us with any advice many many thanks x

Smashing

Just from reading the title of your thread - BAD IDEA.

Tustastic

Hi there, I'm no expert but I do wish you luck in improving your finances - as well as a happy new year:). Re the mortgage, why don't you go to a whole of market broker (as advised in the great mortgage guides on the main part of this site) to see if you can get a mortgage with lower monthly payments.
Re the gym pass, is it worth it when you are so hard up? It's certainly not helping you out-run your debts is it?:). People always say to get rid of Sky, or to bargain it down to around £10 a month.
There'll soon be experts along to help.:)

bananakinz

No!!! Don't do it!!

Is the income figure including OH commission?

Can you cancel the Gym? Reduce the Sky? Reduce the food bill by checking out OS board? Mobile - can this be cut?

LookingAhead

Hi there. Hopefully more technically experienced DFW nerds will be along soon to help more but I would just like to say that I've seen first hand, people keep remortgaging to pay off debts until there is no more equity in the house.

Bad idea as they just ran up debts again within a couple of years and had nowhere to go.

I am not saying you *would* do that but it's a risk.

Might be worth holding off on that idea until people can help you with idea to reduce the debt even if it takes a little while. After all, re-mortgaging will either stick the repayments up or add on time at the end so...it's not a simple answer to your problems.

Good luck though - wishing you well.

immoral_angeluk

Bad. Turning unsecured debts into a big fat secured one isn't a good idea.

CLAPTON

well done for posting the figures.

before real advice can be given you really need to refine your SoA figures...

a. your income...can you work out an average over the last (say) 6 or even 12 months and revise it each month....and base your spending on the average and not each month at a time (that is save a bit if the income is more than the average so you have a bit spare when the income is a bit less than the average)

b. can you increase income....could you get a job in the evening or weekend when OH can look after the baby or could he get an additional parttime job?
can you let a room in the house?
can you sell anything on ebay?

c. stop spending on luxories...you dont need nor can afford a TV at 43.77 per month nor do you need sky or the gym (these two alone can save you over 1,000 per year)

d. how much is the car worth...can you sell it and buy a cheap car instead?

e. do any of your debts have PPI on them ..if so consider cancelling them

f. there are sadly lots of things missing from your SoA...you have a car but have nothing in for petrol, servicing, car tax, RAC/AA, repairs/tyres etc
you have nothing for clothes, socialising, haircuts, presents, xmas, holidays etc etc.

g. start to keep a spending diary and write absolutely everything you spend down...everything and see where everything goes.

h. work out all the yearly and one off costs...these need to be saved for each month so when you need the money you actually have it saved up and don't use credit cards....these all need to be divided by 12 and added to your monthly total.

only when you're done this will it really be possible to see whether remortgaging, downsizing or DMP or whatever is appropriate.

chartreuse_2

If your equity was a bit bigger than your debt you might be able to consider selling up, buying somewhere cheaper and using the difference to clear the debts.

Better IMHO, because you'd end up with a smaller mortgage loan, rather than a larger one and less debt overall, rather than the same amount.

Perhaps that's something you could look at if you're able to reduce your debts by enough to make the numbers work, once you've accounted for stamp duty, conveyancing etc.

moneyfools

2 years ago we did something similar. We needed to consolidate our loans, cards and debts, because we were simply out of cash ever month and eating into the overdraft.
We got a loan to the max equity of our home and the beauty was it was only 234 a month more on the mortgage payment, but the debts we were paying 1080 - so a HUGE saving.

Got the loan, and where we made the BIGGEST mistake EVER, was not cutting up the credit and store cards after the consolidation. We ended up running up to our max again.

Sadly in September 2006, we were evicted from our home.... that's right! It was reposessed. Now we have just found out that the bank has sold the house and we are looking at paying the shortfall of around 14K - on top of the debts we are currently paying off.

My point is this - if you feel it is the right decision for you, and you are 100% sure you will not run up the debts again (which is so easy to do.. it only took us 2 years) then do it, but if you ask for my honest opinion, DON'T DO IT!!!

There are other ways. Getting in touch with your creditors and arranging slightly lower payments or frozen interest is better, whilst you sort out your final budget and can truly make some savings to snowball the debts.

LookingAhead

moneyfools has expressed my concerns perfectly.

seven-day-weekend

We consolidated our debt onto the mortgage of our investment property , BUT.....

...we sold the property six months later and ended up debt-free, AND

...we never used the credit cards again, in fact we cancelled them and only kept one. This is only ever used to buy things like flights or from EBay and the balance is paid off in full each month. The last two months we have spent nothing at all on it.

There is no way we would have used the (substantial) equity from our main home. The only reason we consolidated onto a mortgage at all was that we were selling the property, so it was short-term, and it wasn't our home anyway.

Some friends of mine did the same as a previous poster mentioned, kept putting debt onto the mortgage, they now have no equity left in their home that was almost paid for at one time and they still owe £1000s apart from that.

Don't do it!

My initial suggestion is that you sell your car and buy a banger to last you for a few years. This alone will save you £200 a month. Cancel the gym and Sky too. There will be others along shortly who will know more than me, but those are my suggestions.