Remortgaging - Debt Consolidation

charlie_2015

Hi there,

I am a frequent lurker of these forums but this is my first post as I am in need of some advice if at all possible.

We purchased our house around 2 years ago from a relative at a good price (£115,000). We took out an unsecured loan and a couple of interest free credit cards to make some much needed improvements to our home.

What we are now looking to do is consolidate the credit card debt when we come to re-mortgage. There are a couple of reasons for us not wanting to keep balance transferring them to other 0% interest cards so that option is to be ruled out.

I understand we won't know until we apply but do you guys think we are likely to be accepted due to our financial circumstances?

CC1: Balance £7600, monthly payment of £89
CC2: Balance of £5500, monthly payment of £110
Loan: Balance of £28000, monthly payment £344
Mortgage: Balance of £111,000, monthly payment £550
Value of house: Between £135,000 and £142,000
Joint income: £3200 per month

All payments up to date, no defaults on our credit reports.

I have done a bit of research and with a more preferable interest rate, it appears we should be able to pay off the credit card debt and pay less per month on the mortgage. It is worth noting that our mortgage is a pretty poor interest rate of 4.29%.

Any help would be most appreciated.

Thank you

ACG

There is not enough equity in your home to wrap all of those debts into a mortgage, there is enough to wrap possibly the 2 credit cards into it and possibly some of the loan.

charlie_2015

Hi, sorry I may not have explained properly. The idea is to pay of the credit cards, not the loan.

glosoli

When do the interest free periods expire on the credit cards?

I think one of your problems may be even if you look to consolidate the credit cards, there won't be many options at almost 90% ltv.

Thrugelmir

charlie_2015 wrote: »

It is worth noting that our mortgage is a pretty poor interest rate of 4.29%.

If you purchased the property for £115k and still owe £111k two years later. That's hardly surprising.

Lenders may well question the fact that you've borrowed over £40k to add relatively little value to the property.

charlie_2015

Hi, I appreciate what you are saying. We plan to stay in our home for sometime and whilst we may not see the money spent in regards to value , the jobs needed to be done. Before the jobs were completed the property was valued at £127,000. We have had the kitchen, bathrooms, boiler and windows/doors done swell as some cosmetic work. I am just guessing the value based on what is in the area. Before the kitchen, windows and boiler we had a value of £140,000 from an estate agent.

charlie_2015

Any further advice?

charlie_2015

Just wanting some more advice if this will be possible. As above I am only looking to pay off the credit cards.

Our combined income is 49k per year, around £2200 outgoings per month which includes £300-£400 paying off the credit cards.

For the amount we would need to pay off the debt, on an interest rate of around 1.5% it would reduce our mortgage by £100 per month. This would mean we would be £400-500 better off per month.

Is what I am thinking making sense?

glosoli

The issue you are having is that there won't be enough equity to clear off any / all of your debts.

The first thing you should do is contact a mortgage broker, who knows the debt consolidation criteria of lenders. The majority that I am aware of allow an absolute maximum of 80%, but there may be some that do up to 90%.

If we assume optimistically that the value of the house is £142,000, and if we assume you are allowed to debt consolidate up to 90%, then this would be would be £127,800, which would be additional borrowing of £16,800, which means that even in the best case scenario, you would be left with credit card debt of £24,300, which would not go too far in meeting your objective of decreasing outgoings by £400-£500 per month. Personally, if I was you, I would:

1) Check with existing lender their policy with debt consolidation, and obtaining a lower rate of interest for your existing borrowing,

2) If it is not possible to do this with your existing lender, find out the early repayment charge of your existing agreement (assuming there is one, it would reduce your further borrowing amount even further), and approach a mortgage broker who can advise on debt consolidation criteria of lenders to see if this is feesable with anyone

3) If it is not feesable, see if it would be financially worth while for you to re-mortgage onto a lower rate of interest anyway / and see if there is potentially scope to increase the term of the mortgage to reduce payments further, and use these savings to overpay onto your unsecured debts, concentrating on the highest rate of interest first and begin working through them.

charlie_2015

Thank you for your response.

As I said above, I only want to consolidate the credit cards which comes to around an additional £13k

glosoli

Sorry - yes I see that now. In any case, you would still have the same difficulties because it is a high loan to value, therefore it may still be worth following my previous post. Have you actually spoken to your existing lender or a mortgage broker about it yet?