Should I take advantage of mortgage reserve account?

ninnin_2

I have credit card debt of just under 4k on one card, 2k but with almost a year interest free on another, and an overdraft of 2k and I'm wondering whether to make use of my mortgage reserve account to clear the 4k and overdraft, but I'm clueless how it works, and whether it will be advantageous. My mortgage is currently 43k and house presently worth 105k. I have a Woolwich tracker and was issued with a mortgage reserve a/c cheque book when I remortgaged following my previous deal coming to an end. I'm going to be overdrawn on my overdraft in a few days (most of my debt is car-breakdown related!) and I need to sort something out soon but just not sure of the best alternative. Would be really grateful for some help, thank u.

rjm2k1

Depends on the interest rates on your overdraft/card etc, basically the reserve account lets you write a cheque the value of which gets added to your mortgage, it's kind of an easy way of re-mortgaging/freeing up equity/getting back money you have paid in, so essentially it's a loan secured against your home but without the hassle of setting it up.

If you owe 43k now and have a reserve that lets you write a cheque for 4k, you will have a mortgage of 47k which will increase your monthly payments by an amount. You are of course paying interest on the extra borrowing, but that will probably be at a lower rate than the CC/overdraft though over a longer term. Of course, if you do this, you will free up your CC's/overdraft and increase the temptation to increase the debt again though you say it's mostly down to a car breakdown in the first place rather than bad spending habits.

Since the 2k on one card is interest free for a year you might as well leave that on there but remember to pay it off before the interest free period ends by sending another cheque, make the 2k work for you rather than the credit card company.

So personally, I would

1. Pay off the 4k on the credit card you are paying interest on (assuming the rate is higher than your mortgage).
2. Pay off your overdraft (to avoid charges and since the rate is probably higher than the mortgage).
3. Leave the 2k on the interest free card until just before the period ends and then pay it off with another cheque against the reserve.

ninnin_2

Thank you very much for your helpful response; it's much appreciated.

pusscat

Are you not converting unsecured debt into secured debt?

I am no expert, but that's what it looks like to me....

Try the DFW board - their general advice seems to be to not convert unscured debt into secured.....

But like I said, I am no expert

Puss

rjm2k1

It is indeed converting unsecured into secured and there are reasons for not doing that. I've assumed that the OP want's to clear the unsecured debts and not get further into debt rather than end up defaulting on the unsecured debts etc. Of course another option is to consolodate the debts using an unsecured loan, but the interest rates wouldn't be as good as the reserve account due to lack of security etc.