Increasing my mortgage

Mr_Sensation

Hi, my fixed 2 year term ends next month.

In the 2 years since buying the property, it has increased in value by roughly £40,000

I like the idea of increasing the mortgage by £10,000, meaning it will be £79950 in order to pay off a Personal Loan and a Car i took on Finance.



Option 1: (Pay off all other debt, Car/Loan)
Raise the additional £10,000

Mortgage balance £79950
Interest rate 2.14%
Fixed for 5 years
Mortgage term 28 years
Monthly Mortgage Payments £308.19


Option 2: (Do not take out the £10,000 and just renew my mortgage)

Mortgage balance £69950
Interest rate 1.93%
Fixed for 5 years
Mortgage term 28 years
Monthly Mortgage Payments £269.64

I need help in deciding, in this uneasy UK Brexit Approaching Market

Xyzzy

A major factor in determining which is more cost effective if the interest rate you are currently paying on your loan/debt

Also, a couple of other things to bear in mind-
-'securing' this debt against your house means if you cant pay it in the future your home is at risk
-Even if you get a lower interest rate than it is currently on paying it back over a longer time will increase the interest you'll pay back. Some lenders will only allow you to take the debt consolidation element of your mortgage over a certain time (eg.10 years) which could affect the monthly payments
-Also, based on the figures you've quoted you'll get a higher interest rate (im assuming because it's a highter LTV overall) on the entire mortgage which will impact the cost effectiveness of this option
Who are you planning to remortgage to/with? Depending on the lender you are going to it could work out more cost effective to remortgage as is, getting the lower interest rate, then do a further advance later and you will only incur the higher interest rate on this part
HOWEVER, many lenders will only allow you to take a further advance after 6 months. If you're doing a product transfer with your current lender this could be an option though..

glosoli

Why would you want to consolidate a car finance agreement? People tend to only have cars for 3-4 years, meaning by the time you pay the mortgage off in 28 years, you would have had several cars since.

I would be surprised if a mortgage adviser permitted it unless there was a very good reason to.

Xyzzy

Good point Glosoli; people differ in their plans though.
Not everyone has a short term PCP and changes cars every 3 -4 years.
I have known people to buy a car using a loan with the intention of using it for the forseeable, in which case it could be reasonable to consolidate and repay this part of the mortgage over the relevant number of years (7/8?)

Mr_Sensation

Thank you everyone for the sound advice.

I won't be taking out a secured loan against the property.

I will be remortgaging and increasing the mortgage by £10,000


Also the personal loan i am planning to pay off of £10,000. Currently comes with £1,000 worth of interest.


I just like the idea of taking the £10,000 now, clearing all debt and have more money coming in each month being finance free/debt free

enthusiasticsaver

You wont be debt or finance free by consolidating a car loan into your mortgage. You have moved it, not repaid it and why you would choose to repay a loan taken out to buy a car over 28 years is beyond me. The rate may be lower now, no guarantee it wont rise in the future, but the sheer length of time you are borrowing that £10k over will mean it is much much more expensive when you consider you will be paying that amount off over such a long period. You are also securing it with your home so if you default on payments you run the risk of losing your house and the interest rate is higher if you consolidate debt into the mortgage.


Also while the value of your house may have risen now all indications are that they may fall due to Brexit so next time you remortgage the higher mortgage and a lower value will mean a worse rate as your LTV percentage will be higher.


I would be looking to decrease the term of that mortgage as well. How old are you?

Thrugelmir

Mr_Sensation wrote: »

I just like the idea of taking the £10,000 now, clearing all debt and have more money coming in each month being finance free/debt free

Nice easy way out. Consolidation rarely works though. Few years time. You'll need another car. The cycle continues.

Mr_Sensation

I'm 35 years of age

And i wouldnt call it an easy way out. But if i've got £40,000 equity now, why not have some of that lolly early and use it wisely?

NinaSwiss

Some calculations for you (using online loan calculator)

10k borrowed over 5yrs at 6% interest (£192.59 /mth) will cost you £1,555.39 (in addition to the 10k you pay back.)

Same 10k over 25 years at 2.1% interest will cost you £2,832.88.
Nearly twice the original cost, bearing in mind I could not go up to 28 years on the calculator.

NinaSwiss

https://www.moneysupermarket.com/loans/calculator/

NinaSwiss

Mr_Sensation wrote: »

I'm 35 years of age

And i wouldnt call it an easy way out. But if i've got £40,000 equity now, why not have some of that lolly early and use it wisely?

Expensive lolly though.