Mortgage broker fees and interest rates

Bubbalicious84

Please help!
Here is our background.My partner and I have come into financial difficulty. He is currently with payplan and also has a secured loan that he is under paying (which he took out for a previous partner-another story). I have also accumulated quite a debt since having our 2 children and turning to credit as a means to purchase for Xmas, bdays, clothes etc. Maternity pay doesn't pay well. We are on an interest only mortgage.

More to the point. My partner wants to clear our debts which total around 35,000 . We are paying out over 1000 per month on debts alone which is leaving us with little money to live off. our dia financial background means we have very limited option with getting a loan to reduce the payments. We have found a company which will lend us 40,000 however the broker wants an additional 5000 for his fees and the loan is at 16.9% meaning that over 25 years a 40000 loan will mean we will pay back 190,000 !!!! Monthly payments will go down to 650 pm.

I have argued with my partner saying it's ridiculous. He said his plan is once he has cleared his payplan and secured loan he can build up his credit rating. This will then mean that we have a better chance of moving to a repayment mortgage at a better rate and in time move the loan over to a better rate. My fear is if his plan doesn't work and he still has to get a high rate mortgage. Then were stuck. I think iv answered my own question writing this out but does anyone have advise on the likelihood of getting a better rate on these things? Is this the best root to take? Also, the mortgage broker fees! Is that normal?

Please be kind. I'm loosing sleep and becoming quite ill with worry over this. Our only other option is to sell our house.

Thank you for listening

lopsyfa

Please don't do it - I can't think of anything worse you can do. It is even worse than going bankrupt because you won't still be paying for that after 25 years. I will do anything else to avoid it.

The problem with this plan is, it won't let you address the issue why you got into the debt and the relief you got from the reduced monthly payment will mean you will continue to overspend and accumulate debt and I won't be surprised if you come back here in 1 year with about 80k of debts. You are already falling into that trap by borrowing 45k (actually 50k if you add the broker's fees) to clear 35k debt.

It will be infinitely better to continue working with payplan and maybe do a new plan with them so you can continue paying something more affordable. Have all your creditors frozen the interests on the debts?

I will advise you to post a statement of affairs (SOA) here so the more experience posters can tell you where you can cut down and free some money that you can then throw at your highest paying debts.

The thing with 35k debt is, if you double down on it and pay 1k every month (as you are currently doing) for 1 year, it will be 23k (assuming interest are frozen) in 1 year and then you can maybe slow down a bit and pay about £800 per month (still about 9.6k per year). You can actually finish clearing your debt within 3 years instead of the 25 years+ with your husband's plan.

You can do it much faster if you post an SOA and people help here you cut down the spending and release more money to throw at the debt.

Whatever you do, good-luck with it.

System

Don't call it £190,000 in your arguments, that lessens the impact of it. Call it "almost quarter of a million pounds so in the conversation it goes along the lines of "you think paying back almost a quarter of a million pounds to repay £35k of debt is a sane idea?"

I would be surprised if when your OH starts thinking of it as being the thick end of a quarter of a million pounds in repayments that he still thinks its a good idea.

Selling the house is always an option. No point being brassic broke year in, year out struggling and suffering extreme stress and all the downsides of that if you've got an asset you can sell that'll sort the problem and being on interest only you're effectively just renting it now, albeit from the mortgage company. You can always buy another house when you're in a more stable position.

djphig

The other way to look at it is that you're unlikely to have this secured loan for 25 years. The majority of secured loans are kept for 4-6 years until the persons circumstances change and enable them to either reapply onto a much better interest rate, or do a total re-mortgage. In your case, this will mean having the secured loan for at least 1 year and keeping up with all credit payments to ensure the credit profile gets back on track.

The fee is fairly high though, even in the market which generally sees a fee of 10% of the net loan amount. There are other companies that will, without a doubt, have access to the same lender or maybe even better, with lower fees.

It's a very difficult situation as you might find that his credit profile doesn't get back on track if you start missing payments here and there which will mean you wouldn't necessarily qualify for a better interest rate meaning you're stuck again for another year and so on. As stated above, you definitely need to look into your finances and spending.

Good luck

MEM62

Bubbalicious84 wrote: »

We have found a company which will lend us 40,000 however the broker wants an additional 5000 for his fees and the loan is at 16.9% meaning that over 25 years a 40000 loan will mean we will pay back 190,000 !!!! Monthly payments will go down to 650 pm.

Bubbalicious84 wrote: »

I have argued with my partner saying it's ridiculous.

Well at least one of you understands that. How many more poor (or in this case disastrous) financial decisions does he want to make?

Assuming that this is a joint loan You have the option of just refusing to sign under any circumstances. That will no doubt cause friction now but perhaps, in years to come, he will appreciate the wisdom of doing so.

foxy-stoat

You are wrong, if the plan fails you will LOSE YOUR HOME.

You are better off working out how much equity you have at the moment and if you can sell up and move into a cheaper property on a repayment mortgage with no unsecured debt.

How many years left on your interest only mortgage?

lopsyfa

djphig wrote: »

The other way to look at it is that you're unlikely to have this secured loan for 25 years. The majority of secured loans are kept for 4-6 years until the persons circumstances change and enable them to either reapply onto a much better interest rate, or do a total re-mortgage. In your case, this will mean having the secured loan for at least 1 year and keeping up with all credit payments to ensure the credit profile gets back on track.

Or they run into further difficulty or accrue more debt and can't afford the secured loan and thereby losing the home and/or going bankrupt.

Their credit profile is never going to get back on track 1 year after taking this loan. In fact, it will be worse because they will barely have paid any of the capital back in the first year. They will have approximately paid back approximately just £210 of the capital and about £7589 of interest in the first year. Plus they would have paid an additional £5000 in fees to the agent. No lender except those with even worse rate will touch them after 1 year.

After 4 years, they will only have paid back only about £1104 of capital and £30096 of interest. After 6 years, only £1500 of capital paid back and £37483 of interest. So they wouldn't have even paid off a third of the broker's fees from the capital in 6 years. Meaning they will be worse then today.

I hope you get the point now. Only the interest in the first four years of this loan will see them almost debt free.

I can almost bet there is 1 in a million chance (not impossible) they won't go bankrupt and lose everything if they take this loan.

NB: All calculation done assuming interest are accrued monthly and all months are the same. if I do them daily, the interest will be higher and capital paid back lower.

djphig

In terms of secured loans, if you have kept up to date with payments in the last 12 months, there are plenty of lenders that will consider the application depending on LTV and affordability. It would be perfectly plausible to halve that interest rate, if not more.

Yes, it is perfectly possible for them to go bankrupt or lose their home. But that could be said of anyone. It is worst case scenario. If you notice at the bottom of my reply i did put "you definitely need to look at your finances and spending".

I cannot advise anything specific as i don't know the circumstances and i'm certainly not saying that the secured loan is the correct way forward. I was merely pointing out a different angle.

I have helped dozens and dozens of customers in worse positions who then go on to either remortgage with a high street lender or come back to me and qualify for a much lower rate. Is it right for everyone? Absolutely not. Is it worth considering? Yes. I hope you get the point now.

In terms of fees, i also said there are other packagers who would charge less. I know of at least 1 that will charge £995 but then the customer has to pay for any additional costs like consent to place the charge, valuation etc

Bubbalicious84

Thank you for your valuable responses. I will add more information shortly, once I have sorted my children.

Many thanks

Bubbalicious84

The PayPal debt comes to around 30,000 This is interest free. The other debts all incure interest varying from 26.99%to 39%! So 1000pm over 3 years wouldn't clear the debts. One card alone is costing 80pm in interest and is at 3500!
My partner says that if we do it my way, paying off over time it will take about 10 years. He said by that time he will be 57 (12 years my elder) and they won't look at him for a remortage anyway. The interest only mortgage has under 10 years left.

Yes we need to control our spending. I'm able to go without if it means a
brighter future for my kids and us being debt free. Partner is being very erratic and adamant this is the only option.

I'm going to show him your comments when he's home later. Maybe it will make more sense to him. He has an argument for every point I say.

I really don't want to have to sell the house. We live in a nice area with a fantastic school and unlikely to ever get something like this (although it needs massive home improvements).

I feel like I'v massively messed up. Feeling very tearful and can't believe how were in such a mess!
Thank you for listening

Clive_Woody

On top of the other advice given are you even confident that this £40k loan is genuine?

If they are asking for £5k up front (or anything up front) then start running.

Who is this lender? Would the £40k be secured against your property?