should I secure my loan?

Robert221

Dear friends,

My wife and I were hoping that you could give us some advice on this dilemma:

5 years ago we got a total of £70,000 personal loan (10 years period) for home improvement. Things went as planned and we are now enjoying the much needed more space at our house.

During the last 5 years we have been paying around £750 per month towards our loan. The APR of the loans (several sources) are all around 5%.

While we are ok to continue for another 5 years, we do need to stay on a tight budget which sometimes makes things difficult (we have two teenagers at home with lots of wishes!).

My bank (RBS) gave us agreement in principle to get £70000 secured loan added to our mortgage for debt reconciliation. With the rate that we are in just now this will be around £380 per month (APR 3%) and the loan will be till my retirement that is in 20 years. Also the total amount payable is only slightly more than the total amount payable if we keep the loan unsecured.

My wife and I are both employed on full time basis and there is no chance of redundancy or reduction of salary in our line of work (education).

We are undecided on what is the best:

- The secured loan is putting us on a tight budget but we survive 5 years and will be able to survive another 5. The APRs are fixed so we are sure that we won't pay more every month. After another 5 years we will have £750 more every month which is exciting!

but

- In 5 years time our teenagers will be nearly adults. We feel a bit guilty not to be able to provide them with some of the reasonable things they want as teens. So securing the loan is attractive as it gives us additional around £400 every month. However, the APR is not fixed, there is no guarantee that it stays as low as it is for the next 20 years, and the Brexit is coming!

So the question is: keeping the status quo or moving to secured loan (I shopped around, there are no better rates available for the unsecured loan, we are at the best rates already).

Please help us with your insights so that we can make an informed decision.

Many thanks

Robert and Jane

foxy-stoat

Keep unsecured debt unsecured - I would hope you would of chipped a bit of capital away after 5 years paying £560 a month x 60 months.

DCFC79

Don't change it to secured, your home will be at risk if you do.


You say teenagers, how old ?


Why can they not get a small part time job somewhere to earn money to buy what they want/what they would get you to buy ?

Brock_and_Roll

I dont think my late teens cost me any more than they did when they were little ones, less probably.

They all have part time jobs, enjoying earning their own money and value the (sometimes stupid!) things they buy....but its their own cash!

Nub

You're not really comparing apples with apples, because you currently owe ~£40k and you're talking about getting £70k from your mortgage. Where is that extra £30k going?
The standard advice is not to turn unsecured debt into secured, and the rates are comparable (it's only ~£30/month when you compare like-for-like), so that seems reasonable.
If we assume you only need a £40k loan now, what you're really asking is whether you should make your 5-year loan into a 20-year one, to free up some cash each month now. It's a question only you can answer, but you will pay thousands more (7k minimum) in the long term.

MallyGirl

my teen has got more expensive as her musical abilities have progressed. If it wasn't for the music she would probably not be worse than at any other point in her life.
Driving starts soon though - in an effort to get some of our life back, the aim is to have her driving herself to all the bands and music lessons.
Uni will be cheaper.

I agree with the others that keeping debt as unsecured should be the aim.

Years_of_debt

If you secure 70k against your house pre Brexit then well WOW.

Think about what you said.

5 years, only 5 years and you are £750 better off. With the debt cleared.

Secure a 70k loan against your house (MADNESS) to be better off by £400 a month ~ in 5 years you will be like (damn we would be £750 better off now and no debt, now we only got £400 and we still got to pay that for another 15 years that was stupid as hell wasnt it)

You’re going to be tight for 5 years. Your kids are going to do paper rounds and get a job part time on a Saturday in Tesco, they will be taught the importance of earning their money. As opposed to living off of the bank of Mum & Dad at a cost of your house post Brexit when !!!! Hits the fan and your house gets repossed.


DO NOT SECURE 70k against your house.

jaybeetoo

So £750 a month for 5 years means you pay back £45,000.

£380 a month for 20 years means you pay back £91,200.

You are going to pay back more than twice as much!

buythedip

Not a maths teacher I assume

Nub

jaybeetoo wrote: »

So £750 a month for 5 years means you pay back £45,000.

£380 a month for 20 years means you pay back £91,200.

You are going to pay back more than twice as much!

Guys, he's asking about securing 70k against the property when the loan outstanding is only 40k, it's apples and oranges. £380/month for 20 years is £91,200, but a fair comparison is a new version of his original loan, £750/month for 10 years, £90,000. So, yes, slightly more over the term, but in both cases there is £30k unaccounted for, we need the OP to confirm.

Robert221

Thanks for all the helpful advice.
apologies, I wrote some figures incorrectly by mistake, I was looking at a wrong letter! Thanks for pointing that out.

The original unsecured loan was for 70,000, 10 years, £750 per month, 5 years to go, as I wrote.
The offer for secured loan is in deed around 40,000, 20 years from now, £210 per month.

The total repayment will be slightly higher when secured but as you see payment per month is significantly less. Of course this is all with the assumption that the APR for the secured loan will not go significantly higher in future and after the Brexit.

By the way, we may have misrepresented our boys. They actually are very happy and wise and do not put us under any pressure for money. This is simply our concerns as parents.

I can see that so far every one advises us to keep the loan unsecured. However please let us know if with the above correct figures you have a different view (I guess unlikely!).

Thanks again and sorry for the mistake.

Robert