Taking out an unsecured loan to pay off a secured loan to improve LTV?

Eastlands70

What do people think of this idea?


I've been looking to re-mortgage to a cheaper deal for the past couple of years but there still isn't much equity in the house. The approx figures as they stand are:


* 107k mortgage outstanding which is made up of 98k main loan (4.44% APR) and 9k unsecured loan (4.54% APR)


* Value of house is somewhere between 105k-115k


* 16.5k credit card balance outstanding (all at 0% and currently being paid off at the rate of £400 per month)


Now First Direct are offering unsecured loans to existing customers at an APR of 4% for larger amounts up to 25k. I was thinking that if I borrow the full 25k (subject to acceptance of course), I could pay the credit card balance off plus the 9k outstanding on the unsecured loan, leaving just the 98k outstanding on the mortgage which should give me access to some better mortgage deals than the one I'm currently on. Or to bring the LTV down further and give me access to even better deals, I could re-arrange the 25k differently to the example given above, eg: pay 8k off the credit card balance, the 9k off the secured loan, and 8k off the main mortgage bringing the balance down to just 90k.


I've done some basic preliminary online checks with both the Post Office and HSBC and taking my salary and all outgoings into account, including this extra commitment of a 25k loan, they tell me that I would be able to borrow the full amount I would need to re-mortgage (whether that be 90k or 98k), so that side of it ought not to be a problem.


Is this a good idea? I know it smacks somewhat of robbing Peter to pay Paul, but I'm concerned that interest rates are going to be rising sooner than expected and could do with safeguarding against that for the next few years rather than being exposed to multiple rate rises on my current mortgage.

amnblog

Does assume you will get £25,000 at 4%.

That's a headline rate, that they only need to offer to one person on one loan, at any size, to make the headline valid.

A bit like Man Utd saying come and work for us and earn 200K a week

amnblog

Sorry, should have used Citeh as the example

Eastlands70

amnblog wrote: »

Does assume you will get £25,000 at 4%.

That's a headline rate, that they only need to offer to one person on one loan, at any size, to make the headline valid.

A bit like Man Utd saying come and work for us and earn 200K a week

I can't see First Direct only offering that to one person only but yes, the blurb does say of course that borrowers not meeting certain criteria may be offered a loan at a higher rate which is standard practice for most lenders I guess.

I'm aware that this could happen (being offered a higher APR) but my OP was a hypothetical scenario in that I was offered the 25k at 4% - assuming this was the case, in your opinion would it be a good idea?

kingstreet

The elephant in the corner is the valuation of the property.

£105k to £115k means at the lower end at 93% you'll have few/no options (maybe HTB - Mortgage Guarantee at 5%+) and even with £115k, that's just over 85% and the rates on offer will be no better than what you're paying now.

You really need to establish from recent sold prices what the value is likely to be to see if there is any point in pursuing this;-

http://www.rightmove.co.uk/house-prices.html

Lender surveyors typically look for three sales in the last four months within 0.5 miles.

amnblog

Eastlands70 wrote: »

a hypothetical scenario in that I was offered the 25k at 4% - assuming this was the case, in your opinion would it be a good idea?

It won't pan out as you have outlined here.

Thrugelmir

With a £16.5k credit card balance there'll be issues in obtaining low interest rate finance.

The purpose of the £25k unsecured loan will be a non starter.

somethingcorporate

So you'd have £40k+ of unsecured debt? Unless you earn close to £100k this is a total non-starter and if you did you'd be paying more off your credit cards and have more equity in your house.

Eastlands70

kingstreet wrote: »

The elephant in the corner is the valuation of the property.

£105k to £115k means at the lower end at 93% you'll have few/no options (maybe HTB - Mortgage Guarantee at 5%+) and even with £115k, that's just over 85% and the rates on offer will be no better than what you're paying now.

You really need to establish from recent sold prices what the value is likely to be to see if there is any point in pursuing this;-

http://www.rightmove.co.uk/house-prices.html

Lender surveyors typically look for three sales in the last four months within 0.5 miles.

I had it valued at the back end of last year at 105k when trying to re-mortgage then, so have taken into account the general rise in house prices since then. Personally I think it was under-valued by at least a few thousand but I suppose I would say that lol.


There are a couple of cracking 90% discounted deals available that blow my current rate out of the water - the Leek are offering 2.49% variable discounted for 2 years but how long these types of offers will be around in light of possible interest rate rises is anybody's guess. If I sit tight and continue paying off at the rate I am, I might be in 90% LTV territory in around 12 months time so perhaps it's best that I continue as normal and hope that there are still some good deals around this time next year.

Eastlands70

somethingcorporate wrote: »

So you'd have £40k+ of unsecured debt? Unless you earn close to £100k this is a total non-starter and if you did you'd be paying more off your credit cards and have more equity in your house.

Not quite 40k - the scenarios I posted above had between 25k and 33k of unsecured debt. Granted, that's still a lot though, but I'm just throwing the idea out there to see what people think.


100k? Try halving that and then some

Eastlands70

Thrugelmir wrote: »

With a £16.5k credit card balance there'll be issues in obtaining low interest rate finance.

The purpose of the £25k unsecured loan will be a non starter.

Yep, if they offered me a considerably higher interest rate then the whole exercise would be counter-productive. It's the thought of my current lender's SVR leaping up towards 7% or more over the next few years as a result of rising interest rates that is the sole driver behind this idea.