Moneysavers - Help my brother

optiop

Ok,

Trying to help my brother out, he's got into a muddle, a state, and has come to me today with this information.

He got a loan 2 months ago with Picture for £25K to clear old debts, car loan, couple of credit cards etc. The reason he went with them is because he tried a bank and they refused. He thought he needed to go to a company of the tele as they did bigger loans.
His credit rating is Average. He has never not paid anyone, has recently bought a sofa and laptop on credit and was fine. SO i dont think this is an issue.

Ok, fast forward to today. He is going to a company who were previously HFC and have offered him a better deal, 2 years lower and saves £100 odd a month which they really need at the moment.... Hes asked me to go with him.
He phoned up picture who have given him a settlement figure of £31K!!!!!! (He took insurance out as they said he needed it, though he has a very good job and is very safe)

Him and his Partner are both hard working, she works weekends, he has good paying job. They have a mortgage of 119K and current value of property is well, i would say 138K

He is thinking he needs to sell up, take the equity, pay of part of this loan and get a smaller loan for the rest. Rent for a couple of years and save for a hefty deposit (which they could easily achieve) But I am not sure how they go about this loan which is secured on the property. There would be a short fall of about 10K

He would like to do this for the above reason, and to also move to an area that is better and in the same area as the family. Rental for 2 bed place is £500 a month, so an instant saving.

What can I advise him. I have spoken to the CAB who really couldnt advise on that.

Just for figures info:

Mortgage of 119K (619.00 per month) 25years original term
Loan of 25K (410 per month) 10 years (taken 2 months ago)

Anyone able to advise me? We are of to this HFC people tonight.

Storm

As far as the loan with picture & the settlement figure goes he needs to work out whether it will save them money in the long term, not just easing up the monthly repayments. The Picture one if it goes for the full 10 years will cost £49200 I've worked out - a smaller one by the time he's factored in the cost of moving etc might not be much cheaper!

Also, if he rents a new property rather than buying then he's less likely to get a good loan rate as the cheapest ones are secured on your home anyway, so the monthly repayments might be almost as much anyway (though rent would be cheaper than current mortgage payments.

With the PPI - check what this actually covers, and for how long as a lot of the insurances that come with loans aren't necessarily that good - he should be able to cancel this & get an independant PPI at any point of the loan term I believe.

It sounds like a bit of a nightmare situation to be honest - if he wanted to pop up a full SoA we'd probably be able to help further, find areas to cut back on etc

CLAPTON

First thing they need to do is to look at why they are running up these debts. They should look at all their income and spending and see how they can cut back.

I would suggest they come on this board and post a full SOA.

As far as the loan is concerned they ought to write to Picture and complain about being mis sold the PPI and ask for it to be taken off the loan. The mis selling would be because they were told they had to take the PPI.

Whether its better to get a new loan to pay off the picture loan depends upon the detailed figures but at the moment they have to compare a new loan for the picture settlement figure of 31k and not the original figure. If its cheaper then it may be worthwhile. However if they are going to sell the house then its hardly worth refinancing the picture loan.

On the matter of selling and renting then it may well be the way forward but they need to consider the full costs of getting a loan to pay off the picture secured debt (i.e.
31k-19K (equity) + 3k (selling costs) = 15K).

How quickly would they be able to pay off this debt and so they can start saving for a new depoit?
I dont really see how they could 'easily achieve' saving for a hefty deposit with this level of debt hanging over them.