Please Please Help - What Do I Do?

planetm_2

I have been having sleepless nights about what to do about my current situation. I am a single mother of a 5 year old and receive no financial help from my ex-husband.

Here is the situation:

I currently have a discount rate mortgage of 7.19% with Future mortgages and my repayments are £970 interest only.

I am locked in until 18 May 2008 or I pay almost £10,000 in penalties to get out of mortgage before then.

I have a £163,000 mortgage with house valued at £225,000. I also have debts of £20,000 on credit cards - all at 0% APR and I change when the deals end so to ensure not paying interest.. I am self employeed and HAVE to self certify.

My issue is, I am worried about rising interest rates but if I remortgage now, I lose £10k to penalties. If I wait for the next 11 months however, fixed rates will be much higher than they are now.

I have been offered a fxed rate for 2 years with Alliance and Leicester at 5.69% until 31/08/2009 with a £1995 fee for a mortgage of £185,000 (that is consolidating £12k of debt into loan, fees and penalty on top of the £163 outstanding). Payments would be £886 per month.

I KNOW I will be losing the 10k straight away but I am so worried what the next 11 months will be like with mortgage rate rises. Not only that but concerned about what fixed rate I will be able to get in 11 months time in terms of a fixed rate if I wait until then to avoid the 10k penalty. I know it seems like I should just wait but interest rates are set to rise and it is a gamble to wait and I'm scared.

My ex does not make much money so getting money from him is not an option.

What do I do? I want to get on my feet but with the high mortgage payments and high debts, I can't see a way. If I remortgage I can pay off some debts and with some of the money I will be saving each month, I can be debt free (on cards) in 18 months if I plow that money into the cards. This seems better as I can see light at the end of the tunnel.

I need someone not close to this to help me decide what is best as need to make sure my son and I have some security and feel like a failure right now.

Any advice would be great.

Best wishes,

PLANETM

phlash

Sell your house and downsize, thus reducing your exposure.

Take the £10,000 hit on the mortgage by selling now, or wait till the mortgage expires and then sell. Waiting could see you command a higher price, however it could also mean that your house sells for £25,000 less because interest rates may have gone up, and people's ability to borrow that much has become very difficult.

Get debt free and pay the £10k - its only come from 'equity' anyway.

Most importantly, speak in person to a IFA - Independent Financial Advisor. Re-mortgaging by taking a £10,000 hit in order to conserve a lower rate of interest is a foolish move, and you need advice IMHO.

fimonkey

I personally think you need to see an IFA, as it will all depend on the interest rate you're currently paying on your debts (is it one big debt, or many little ones)? If latter, it may be worth just consolidating these onto one loan with a lesser APR.

In terms of re-mortgaging now instead of later, what are your curent monthly repayments and interest rate? (Don't need to say on this board, just getting you to work it out). Then calculate the difference in what you're currently re-paying and what you would pay if you re-mortgage now over the 11 months your current mortgage is left to run. Is it more than 12K (i.e. the 2K arrangement fee on the new mortgage and the 10K get out clause of your old)?

Finally, how much higher do you think interest rates will rise? I'm hearing anything over 7% will cripple the country so I doubt it'll be any higher than 7% in 11 months time. But go for worst case scenario. Could you afford the repayments in 11 months time if you re-mortgaged at a rate of 8%? And have you looked at possibly re-mortaging on an interest only basis for a couple of years till you get back on your feet again?

there are so many possibly permutations that I really do think you should make use of the free 1/2 hours IFA's tend to offer, and make sure you have all your figures and maths worked out before you see them.

Good luck

planetm_2

Hi,

Thnaks for your posts.

I have considered downsizing but after estate agent fees, solicitor, stamp duty, penalty (see note below) etc I only have a 14k lower mortgage and still my debts on top. That is a hard pill to swallow when there is £60k equity. I would be paying £19k in all of these fees alone to move - when I could be using that to lower my debt and have a lower monthly mortgage payment. The loan with Future IS NOT portable SO if I move regardless if I mortgage for current loan amount, I still pay the £10k penalty regardless. (Will never use Future Mortgages again!)

If I paid the penatly (£10k) and some of the debts (£12k), I am saving £300 per month on the cards and £80 per month on the mortgage at its current rate so this would be £4180 saving over next 11 months at minimum. So i lose some money from the £10,000 but I also have interest rates going up on my current mortgage and what could be a much higher fixed rate next year so have to weigh up savings there as well. So weighing this all up it seems I'd lose only a bit over the term, not the entire £10,000.

I HAVE talked to an IFA - they seem to think paying off and getting away from Future is a good idea.

I know it seems obvious what to do, but as I pay 0% APR on cards and could be debt free in 18 months on these cards IF I remortgage as can afford to pay more to the cards each month this way with the money i'm "saving" each month, this option eems better but waiting until next year leaves me with all of the debt now and high payments now and higher payments next year with rates going higher...........

Sorry, to go on, Just doesn't seem as black and white as it shoudl be to me!

Shambler

I would ( and did ) sell the house and go into rented accomodation which allowed my to instantly get out of debt.

Wait till your current mortgage deal expires before selling to avoid those 10K fees.

It is not ideal because you then fall off the housing ladder, but neither is being constantly stressed because of debt.

I would also get on the council housing register.

lynzpower

What i dont understand is why you are consolidating the debt onto an interest bearing mortgage when they are all on 0%

I know it makes it "simpler" but it sure makes it WAY more expensive

planetm_2

Hi,

I am looking to consolidate to get my monthly payments lower. I know it is MUCH more expensive but I am trying to get on my feet workwise and if I am able to pay off the remaining debt in 18 months, I will then be in a better postion to start paying off my mortgage and will hopefully be earning more money then. I am trying to ease the burden now without losing my home is all.

silvercar

That 10,000 penalty means that mortgage rates have to rise by 6% (thats rise BY 6% not to 6%!) to make it worthwhile paying the penalty!

Hold on, it has to be cheaper to wait 11 months than pay a penalty that size.

Think of that 10,000 penalty costing you 1,000 a month for 10 months - then you can see it makes sense not to pay it.

EdInvestor

I would sit tight until May assuming you can manage with payments possibly going a bit higher over the period..After all 10k is half your total debt, it's a lot to lose.

It's pretty unlikely interest rates will go higher than 6% IMHO, you can see they are having the desired effect already, and mortgage rates will usually move in advance of the base rate, so the likelihood is a better deal will arise next year than the one you have on offer now after the turn.

kennyboy66_2

I hope you can manage to sit tight for the next 11 months. £10k is a ruinous amount to write off.

I would;

1) Keep chipping away at the credit card debt, setting yourself an acheivable target.
2) Keep churning the cc to keep them at 0%
3) See a broker in Feb 2008 with a view to remortgaging in May 2008. You have the option of consolidating some of your debt then.

I would be surprised if you cannot get close to your current rate in May 08

JoeK_3

planetm, by remortgaging before May 2008 it would cost you more than £12,000 immediately and besides this you would be converting your 0% credit card debts to 5.69%.

I wouldn't be able to sleep if you did that!

Chill out.

JoeK