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Shift debts to your mortgage? discussion area

edited 30 November -1 at 1:00AM in Mortgages & Endowments
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Former_MSE_AlanaFormer_MSE_Alana
252 posts
edited 30 November -1 at 1:00AM in Mortgages & Endowments

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Shift debts to your mortgage?

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  • JimmyTheWigJimmyTheWig Forumite
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    Points 3 and 5 contradict each other.
    Point 3 is very valid, but only because it involves keeping the debt for a long time.
    Point 5 says don't do that, so that renders point 3 invalid.
  • JimmyTheWigJimmyTheWig Forumite
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    Also I'd like to see two more scenarios in point 5.

    I think what most people would do (and I may be wrong) if they added the debt to their mortgage is leave the term of the mortgage alone and increase the monthly repayments to achieve that. I would guess, then, that this would be a 10% increase in monthly repayment. While better than scenario 1 it is much worse than scenario 2.

    The other thing that would be a good comparrison with the situation before shifting would be to pay £885 for x number of years and then drop to £585 for the remainder, where x is calculated to make the total repayable in 25 years. [Or pay £y for 4 years than drop to £585 for the remainder, where y is calculated to make the total repayable in 25 years.]
  • ThrugelmirThrugelmir Forumite
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    People consolidate debt as they become strapped for cash. So care little about the longer cost.

    People that consolidate debt are just as likely to obtain more credit at a later date. Statistical fact that over 50% do.

    Lenders see the level of people's indebtedness during a mortgage / remortgage application. Increasingly people are being declined as underwriting criteria is tightened. (Not before time).

    The focus should also be on addressing why people are in debt. Many can tackle the issue merely by changing their spending patterns. However no wish to. Living today paying tomorrow is a sad reflection of our culture today. For many its going to end in tears.
    “Markets have been so good for so long, that many investors are trivialising the advanatages of actively managing portfolio risk" - Gervais Williams
  • Martin

    Did you really let one of your "knowledable" staff write point 3? Have they never heard of the time value of money? the scenario doesn't even seem to appreciate the fact that different people will have different financial needs and requirements, however if we put those factors aside, then the only real way of assessing the total cost to an individual of either scenario is to do discounted net present value of future cash flows calculations....even I can see that, given fairly normal expectations it is preferable to pay £7.5k in interest over 25 years as opposed to £5,200 in interest over 5 years!! (not least because you won't have to live on the bread line for those first 5 years)

    Equally, your statement "the longer it's for, the costlier it is" is useless without an appreciation of the context in which the borrowing is set. Again in NPV terms, if inflation rages in years 6 to 25 and your interest rate is fixed then it will be cheaper to repay over a longer period of time.

    Come on MSE - I thought that you were meant to be a bastion of sensible financial decision making and planning. Remember, debt per se, isn't necessarily bad...expensive debt however generally is......(unless you have a high yielding project to invest it in and are prepared to take the risk that you might lose it all).
  • ...remember there is always a "cost" to the activity known as "spending money"....you either lose interest on money that you (used to) have (by withdrawing it and handing it over to somebody else in exchange for goods or services) or you pay interest by going overdrawn and borrowing money that you don't have in the first place.......
  • anniecaveanniecave Forumite
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    Martin

    Did you really let one of your "knowledable" staff write point 3? Have they never heard of the time value of money? the scenario doesn't even seem to appreciate the fact that different people will have different financial needs and requirements, however if we put those factors aside, then the only real way of assessing the total cost to an individual of either scenario is to do discounted net present value of future cash flows calculations....even I can see that, given fairly normal expectations it is preferable to pay £7.5k in interest over 25 years as opposed to £5,200 in interest over 5 years!! (not least because you won't have to live on the bread line for those first 5 years)

    Equally, your statement "the longer it's for, the costlier it is" is useless without an appreciation of the context in which the borrowing is set. Again in NPV terms, if inflation rages in years 6 to 25 and your interest rate is fixed then it will be cheaper to repay over a longer period of time.

    I agree with your point about inflation affecting the value of money over time. But the good thing about the article is it shows people how the length of time of borrowing affects the interest paid. So by not reducing amount repaid, and actually overpaying later on, it does illustrate the point that you can take years off your mortgage.

    If I had a mortgage (which I don't) I would be aiming to pay it off as quickly as possible, because I understand that that makes financial sense. A lot of people don't get this.
    Indecision is the key to flexibility :)
  • dippydippy Forumite
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    Martin

    Equally, your statement "the longer it's for, the costlier it is" is useless without an appreciation of the context in which the borrowing is set. Again in NPV terms, if inflation rages in years 6 to 25 and your interest rate is fixed then it will be cheaper to repay over a longer period of time.

    Come on MSE - I thought that you were meant to be a bastion of sensible financial decision making and planning. Remember, debt per se, isn't necessarily bad...expensive debt however generally is......(unless you have a high yielding project to invest it in and are prepared to take the risk that you might lose it all).

    Your point about inflation isn't exactly true. The only type of inflation that helps debtors is wage inflation. At the moment, wage inflation is quite low while price inflation (CPI) is actually higher. In the current scenario, the population isn't earning much more, but is spending more, thus they are feeling the squeeze.
  • The focus should also be on addressing why people are in debt. Many can tackle the issue merely by changing their spending patterns.
    This.

    The article really needs to draw this out more.

    Key challenges to the person considering consolidating debt on to a mortgage should be:

    1) Why are you in this position?

    2) What will you change to avoid it recurring?

    3) How will you make sure that change sticks?

    If there is no understanding of how to answer all 3, then consolidation is a dangerous route to take.

    Phrases like "You're a year in to a 4 year loan for a car and you want to stretch that to 20 years. How will you pay for the next car?" leap to mind.
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