Equity release to pay off debts

N241ick

Hi all

Myself and my wife have been pretty sensible and clever to date with finances and looking to extend out out mortgage, release some money to consolidate some debts

We bought our house for 180k 6 years ago, 10% ltv and since then remotaged twice (fixed) and kept our payments nearly the same each time. Our house is now worth 250000 and we are currently paying 800 pmonth and at the end of this term will have approx 16 years left.

We are currently paying childcare which is close to our mortgage payment so finding spare money/saving will be more difficult for the next few years.

We have an option to pay a balloon payment for our car (8500) in October this year, have approx 2k credit card debt and looking to do some home improvements. So in all we need about 15k.

My question. Is it worth stretching our mortgage back out, releasing some money and hopefully dropping our monthly payment a bit?

After childcare expense drops etc we will begin to up our mortgage payments a bit

I appreciate this is a long post, thanks if you have read this far... Any advise would be amazing!

enthusiasticsaver

First of all releasing equity from your mortgage to repay debts is a bad idea. My advice would be to try and clear the £2k credit card debt by cutting back and then using a 0% card to sort out the car. Is it actually worth £8500? These PCP deals are notoriously expensive and I am never sure why people go for them but if the car is worth considerably more than £8500 then a 0% deal is the least worst option. Consolidating debt on to your mortgage for things like credit card debt and cars leaves you very vulnerable if for some reason your income dropped massively and you have a high mortgage payment due to constant remortgaging. You can temporarily extend the term to reduce the payments if you are really struggling but I would not add to the mortgage balance.

Can the home improvements wait until your childcare bill is lower?

N241ick

Thanks for the reply!

I will check the true value of the car, ccard debt is manageable at the moment and yeah, home improvements could wait

My theory is (that I tell myself anyway) is that I could actually reduce my monthly mortgage payment. Hear me out...

Started at 160k owed, 180k house, about 700 ish a month (35 Yr term)

Paying 800 currently, we owe 144k, 250k House. 17 year left

Just looking at online remortgage quotes etc (subject to acceptance) a 160 mortgage on 250k House, 25 Yr term is 610 ish a month

That is 15k release. Unless I don't understand this !!!55357;!!!56834;

Thrugelmir

N241ick wrote: »

Just looking at online remortgage quotes etc (subject to acceptance) a 160 mortgage on 250k House, 25 Yr term is 610 ish a month

Extending the term looks attractive from a cash flow perspective. However that £8,500 for the car doesn't look so attractive if it's going to take you 24 years to repay it.

enthusiasticsaver

If you go for the remortgage the payment is only being reduced because you are extending the term from 17 years to 25 years. Do the same calculation without the remortgage so £144k on £250k over 17, 20 and 25 years. If you pay that £15k over such a long period of time you will pay an awful lot more than repaying on a 0% card or even a low rate unsecured loan and you wont be increasing your mortgage.

N241ick

Thanks again for replies

I see your point over a longer term. That is assuming I would keep to that new 25 Yr deal...

In reality, if this was an option when my outgoings dropped (about 4 to 5 years) I would look to bring my term right back down again so it would be shorter term. Having said that I see it would cost more either way?

enthusiasticsaver

If you overpaid or changed the term in four or five years then yes this will reduce the overall cost but I still don't think increasing your mortgage to repay credit card debt and the car is a good idea. In general these should be short term debt not long term debt which a mortgage is. Particularly if your credit card debt is 0% why would you pay interest on it?