Additional Borrowing on Existing Mortgage to Pay off Credit Cards and Loans?

FelineFan

Looking into ways of ridding outselves of credit card and loan debt (and the high interest rates) and am looking into possible additional borrowing on our existing mortgage to do this.

Facts are:- Mortgage is currently just over £30,000. House is worth approx £180,000. Have 5.5 years left until Mortgage is paid off.

Debts are approx £38,000 - 1 loan, the rest credit cards.

Got quotes from Mortgage Lender and the additioanl monthly sum, (on borrowing £30,000), is less than half what we are currently paying towards paying off CC and loan.

Sounds like a win-win, no brainer, but am cautious. Anyone ever done this? Would it be a good idea to so?

Thanks in advance for any help or advise.

TadleyBaggie

Might be a good plan, as long as you don't run up the credit cards again.

Tixy

Things to think about before you decide if its a 'no brainer'-

Is the new loan on the mortgage also over the 5.5year remaining term?

Does it allow overpayments without penalty?

Is it a fixed APR or a variable 1?

Before you make your decision conisder what you would do if one of your loses your income (especially if only 1 works). Will you be able to afford the repayments on the higher mortgage? will you be putting youselves at a greater risk of losing your home?

What you are currently paying to your loan and cards - can you afford that amount and still live comfortably?
based on your current debts and current repayment -how long will it take you to become debt free and how much interest will you pay in total between now and then? (if you are not sure use a snowball calculator to work it out for you).

Will moving the debt to a secured debt and halving the repayment cost allow you to live within your means and not run up the debts again? are you certainto be disciplined enough to do so?

FelineFan

Thanks Tixy - my responses are below

Tixy wrote: »

Things to think about before you decide if its a 'no brainer'-

Is the new loan on the mortgage also over the 5.5year remaining term? Yes

Does it allow overpayments without penalty? Not sure what you mean here?

Is it a fixed APR or a variable 1? Would be variable. So am aware it will increase, if rates go up!

Before you make your decision conisder what you would do if one of your loses your income (especially if only 1 works). Will you be able to afford the repayments on the higher mortgage? will you be putting youselves at a greater risk of losing your home? Definitley a consideration we have thought of. We both work full-time, with no current threat of redundancy. No dependants and we have parents to fall back on, in a dire emergency!

What you are currently paying to your loan and cards - can you afford that amount and still live comfortably? Hmmm, not comfortable, more just about manage.
based on your current debts and current repayment -how long will it take you to become debt free and how much interest will you pay in total between now and then? (if you are not sure use a snowball calculator to work it out for you). Both loans, (said 1 earlier it's actualy 2), will pay off in 2 years. Credit cards, hopefully in about 5 years? The interest will be horrendous, if we carry on as we are.

Will moving the debt to a secured debt and halving the repayment cost allow you to live within your means and not run up the debts again? are you certainto be disciplined enough to do so?Yes, this would be a way of wiping the slate clean, allowing us to have spare cash and to save! We have definitly learnt from our mistakes.

Ganga

Hello FelineFan
We did the same thing and to be honest it was the best move we ever did.Have you told the BS what the additional advance is for? the reason i ask is we contacted our BS for additional money as we had plenty of equity in the house but this how we thought the conversation would go:-

Hello mr x, how are you today,can we do anything for you? what borrow extra money? lets have a look,yes no problem we will send the paperwok out for to sign in a few days,no problem have a nice evening.

HOW IT REALLY WENT!

Hello mr x, how are you today,can we do anything for you? what borrow extra money? what for, oh to pay off some debts, (not much just a few cards etc. )lets have a look at your debts shall we ( oops ) OH! YOU APPEAR TO HAVE,LET ME SEE, 1 NO 2 NO 3 NO IT LOOKS LIKE SEVERAL C/CARDS AND YOUR WIFE HAS THE SAME AND A SECOND CHARGE ON THE PROPERTY!!

At this point i was sliding off my chair with shame however the man said mr x you are in big trouble with your finances as we had never missed a payment but were paying the mininum amount or just above,However he looked at the bigger picture and sudjested that instead of borrowing about £20,000 as we requested the amount to clear our debts was £55,000. Luck was our side as we had enough equity to cover it, however our morgage payments went up from £250 a month to £1030.00 a month!
This was the best thing we did as 5 years down the line the morgage has dropped but i know that left as it was the c/card debt would have spirraled and when we retired with less income the morgage would have been payed off but not the debt!

Sorry if i have waffled on but i hope our experiance might help with your decision PS if you do do it cut up and cancell the credit cards!!!

Regards Ganga

FelineFan

Thanks very much for your very honest and frank response Ganga.
I'm still quibbling over the issue and just can't make up my mind whether it is the right thing to do or not! Maybe I need to phone a debt agency for advice?

I just fel a bit sick, about borrowing money to pay off credit card debt, when there are several other better uses it could go towards, i.e. home improvements!
Like you, we only pay the minimum (or just over) CC card amount each month, so feels like we'll never pay it off! We have already cut up the cards and are just paying them off.

CLAPTON

FelineFan wrote: »

Thanks very much for your very honest and frank response Ganga.
I'm still quibbling over the issue and just can't make up my mind whether it is the right thing to do or not! Maybe I need to phone a debt agency for advice?

I just fel a bit sick, about borrowing money to pay off credit card debt, when there are several other better uses it could go towards, i.e. home improvements!
Like you, we only pay the minimum (or just over) CC card amount each month, so feels like we'll never pay it off! We have already cut up the cards and are just paying them off.

it's a no brainer; whyever would anyone want to pay massive interest when they have an option of paying only a little interest?

mind you it is a bit frightening that you are already fussing bout spending on home improvements

Ganga

FelineFan,do not forget that if you do take out additional borrowing from the BS that they will tell you what you have to pay each month ( which i know is less than the cards/loan payments) but the total amount owed will drop every month compared to the other debt which is probably rising with the interest added every month.
I hope it works out for you but PLEASE CUT UP THE CARDS AND CLOSE THE ACCOUNTS!!! if you do not want to be in the same position a few years down the line.

FelineFan

CLAPTON wrote: »

mind you it is a bit frightening that you are already fussing bout spending on home improvements

Not sure I get what you mean Clapton??

bigadaj

FelineFan wrote: »

Not sure I get what you mean Clapton??

I think they have taken this as an 'and' whereas your intention was an 'or'. Still if you do convert the debt you must ensure that you don't run the debt up again. If you can maintain payments at the current level, then you could pay the loan element and whole mortgage off more quickly. Remember whilst the rate is much lower, extending short term debt over longer timescales means that you end up paying far more in total in interest, for every pound of mortgage you will pay between three and five pounds in interest over it's life.

Ganga

bigadaj,i bet the interest rares on the C/C,s and loan are higher and as FelineFan stated they only pay the minumum payment or just over.The only way to find out would be to get a quote from the BS, look at the payments ie £ x term of loan compared with paying of the C/C,s. Anyway i hope it works out well for FelineFan who has at least decided to do something about the situation.