Secured loan - we made a mistake?!

Grazeley

Hi - newbie here.

Background:
Brought our second property, spent money we didnt have on credit cards doing it up and furnishing it. Amounted to nearly £30k in total on the credit cards (including debt on overspending each mth - I know it's bad).
Wanted to get rid of this debt as meant we couldnt save any money and were living month to month. Couldnt remortgage early for various reasons, advised to get a secured loan. We proceeded nervously and now pay the same amount of money we did before to the credit cards but to one loan company, advice was it would 'tidy everything up'. Plan was to pay off the secured loan when we remortgage in 18mths time.

Concerns are:
- we are paying a ridiculous amount on the loan. Over 25 years at a high APR. I could get an unsecured loan for the same amount per mth over 7 years - Question: should i do this and pay off the secured loan with an unsecured loan (£120 early repayment fee) ??
- we might not get a good mortgage offer in 18mths so might not be able to pay it off then. I certainly cant keep it for the next 25 years?!
- initial look into remortaging early and paying the £5k early repayment fee shows we can't borrow enough and what we need. Should I keep trying? Is this the best option?
- we are still struggling every month - getting rid of the loan into the mortgage would free up nearly £400 a mth which we can use for savings and to stop living on the credit cards each mth.

Have I missed any info that might help? Appreciate any advice. TIA.

Ben8282

Grazeley wrote: »

Hi - newbie here.

Background:
Brought our second property, spent money we didnt have on credit cards doing it up and furnishing it. Amounted to nearly £30k in total on the credit cards (including debt on overspending each mth - I know it's bad).
Wanted to get rid of this debt as meant we couldnt save any money and were living month to month. Couldnt remortgage early for various reasons, advised to get a secured loan. We proceeded nervously and now pay the same amount of money we did before to the credit cards but to one loan company, advice was it would 'tidy everything up'. Plan was to pay off the secured loan when we remortgage in 18mths time.

Concerns are:
- we are paying a ridiculous amount on the loan. Over 25 years at a high APR. I could get an unsecured loan for the same amount per mth over 7 years - Question: should i do this and pay off the secured loan with an unsecured loan (£120 early repayment fee) ?? YES
- we might not get a good mortgage offer in 18mths so might not be able to pay it off then. I certainly cant keep it for the next 25 years?! THIS IS A STATEMENT NOT A QUESTION
- initial look into remortaging early and paying the £5k early repayment fee shows we can't borrow enough and what we need. Should I keep trying? Is this the best option? YES BUT DON'T KEEP ACTUALLY APPLYING
- we are still struggling every month - getting rid of the loan into the mortgage would free up nearly £400 a mth which we can use for savings and to stop living on the credit cards each mth. THIS IS A STATEMENT NOT A QUESTION

Have I missed any info that might help? Appreciate any advice. TIA.

Does that help?

Arleen

You really need to head over to the debt free wannabe board and post a soa. Plenty of great people will help you in a non-judgemental way as they navigate your budget, helping you to save.

robber2

Not sure what you are asking for here but Id advise selling the 2nd property, its financed by debt and you appear to be living way beyond your means as a result.

Nebulous2

I can think of some important missing information.

Firstly what is the property for? Second/ holiday home or a rental?

If the former - it looks as if you can't afford it. If the latter then how close does the rent come to covering the mortgage and secured loan?

Secondly - what's the interest on the secured loan? Compared with the personal loan?

Switching might well be worth doing if it saves money, but it doesn't reduce debt, just shuffles or often extends it.

Thirdly what is mortgaged -and the loan secured against? Your main home or the second property? There could be options to sell the second property now, repay the secured loan and not take the hit with the ERC if the mortgage is on a different property.


You seem to have found out the hard way what many here counsel against. Consolidation often doesn't work as people then go back to using the credit cards they just cleared.

Grazeley

Thank you for replies.

Bad wording in OP, meant that we brought our second property as in we moved homes weren't first time buyers. we just have one property with the original mortgage and then the £30k secured loan for home improvements and debt consolidation.
If I can remortgage and get rid of the secured loan onto the equity that's best option? In terms of freeing up the large amount of money we pay each mth on the loan. Aim would be remortgage payments would be roughly the same we pay now.
Or if I can't, wondered about taking the unsecured loan which is lower interest rate to clear the secured loan (16% vs 4% rep APR)

I'll do an SOA thank you for the suggestion.

PeacefulWaters

What's the value of your home?

How much is the mortgage on it?

Thought from me:

You probably won't get a cheap unsecured loan rate.
Your secured loan is expensive but probably cheaper than your credit cards.
You might not be able to remortgage.
You might only be able to remortgage by putting much of the debt on a higher rate than it is now.

enthusiasticsaver

So essentially you have turned unsecured credit card debt into secured debt. Have I got that right? If so, yes this is a massive no no. If you have a £5k early repayment fee on your mortgage and there is no guarantee you will get a better deal then no you should not remortgage early.

I would suggest you head over to the DFW and post an soa (see sticky at top of thread). I would focus instead on cutting outgoings (or increasing income) and overpay the loan as much as possible to get it cleared well before the 25 year period. Not ideal but I cannot see a better option. I certainly would not recommend more borrowing as an option and hopefully the credit cards you cleared are not building up again. You need to start budgeting carefully and living within your income to avoid this situation getting worse.

You wont be the first or last though to make the mistake of consolidating debt so don't beat yourself up and just focus on a plan to fix it.

Tiddlywinks

Drastic solution.... sell the house, move in with parents or rent somewhere small and cheap for a year. The debts will be cleared.

Live as cheaply as possible and build up a deposit and try again but without any debt hanging over you.

If you stay as you are you will be tempted to use the credit cards to subsidise you and your debts will increase further.

You're running the risk of failing future affordability criteria - mortgage, second mortgage plus no wriggle room between your income and outgoings will be a big red flag to any lender.

Short term pain might save you from getting deeper and be better in the long run.

foxy-stoat

List up the value of your property, balance on mortgage and secured loan, any other debts and salary.


You have found out the hard way that you cannot borrow your way out of debt and now your home is at risk.


You need to overpay the highest interest (secured loan) or down value the house.