Remortgage to clear small debts

Helensmum

Hello!
We purchased our house approx 18months ago and made a few major changes. We got the house revalued and have gone from £145k to £195k - Hooray!!

We had planned to use this to our advantage and look at moving, but currently the move wouldn't give us enough house to justify it. So, we thought we could remortgage to pay off any current debts, putting us in an overall better situation.

We have a credit card, small loan and a few bits on the last year of finance (carpets and kitchen from the move).

Generally speaking, what's the best way to go about this? Direct to our lender? Through a broker? Mortgages baffle the life out of me, so just want to make sure we go the right way.

SpiderLegs

Helensmum wrote: »

Hello!
We purchased our house approx 18months ago and made a few major changes. We got the house revalued and have gone from £145k to £195k - Hooray!!

We had planned to use this to our advantage and look at moving, but currently the move wouldn't give us enough house to justify it. So, we thought we could remortgage to pay off any current debts, putting us in an overall better situation.

We have a credit card, small loan and a few bits on the last year of finance (carpets and kitchen from the move).

Generally speaking, what's the best way to go about this? Direct to our lender? Through a broker? Mortgages baffle the life out of me, so just want to make sure we go the right way.

Absolutely stupid idea.

Why on earth would you refinance loans in their final year into a 20 odd year mortgage.

Pay the debts off over the short term and continue to build up equity in the current property until you have enough for the next house.

BookmobileBadGirl

Don’t do it!

Pay off your debts, look at debt diaries for inspiration, and continue to build up equity and hopefully the house price will rise further

Retired_Mortgage_Adviser

When does your current mortgage fix end? And who performed the valuation that returned 195k?

You could either get a further advance from your current lender (if they will advance one for debt consolidation) or if you are free to remortgage without penalties, consult with a mortgage broker to look at your options for a remortgage with debt consolidation.

If your house has indeed increased in value by that amount, you could well be looking at significantly lower mortgage rates just by moving LTV bands due to the increase in value.

Converting unsecured short term debt into a secured mortgage is not always the right thing to do as you may end up paying more ££ in interest over the term of the loan, so do carefully think about it. Your mortgage broker (assuming he/she follows FCA guidance) will look at the details of the debt being consolidated and should tell you if it isn't advisable in your particular circumstances.

Helensmum wrote: »

Hello!
We purchased our house approx 18months ago and made a few major changes. We got the house revalued and have gone from £145k to £195k - Hooray!!

We had planned to use this to our advantage and look at moving, but currently the move wouldn't give us enough house to justify it. So, we thought we could remortgage to pay off any current debts, putting us in an overall better situation.

We have a credit card, small loan and a few bits on the last year of finance (carpets and kitchen from the move).

Generally speaking, what's the best way to go about this? Direct to our lender? Through a broker? Mortgages baffle the life out of me, so just want to make sure we go the right way.

yksi

SpiderLegs wrote: »

Absolutely stupid idea.

Why on earth would you refinance loans in their final year into a 20 odd year mortgage.

Pay the debts off over the short term and continue to build up equity in the current property until you have enough for the next house.

I think you've misunderstood. It isn't the last year of finance, it's things that have been financed over the last (PAST) year. So the reaction was perhaps a little bit more blunt than you intended?

Irregardless... the reaction was sort of correct. The prevailing wisdom is that you shouldn't roll credit card debt, goods on finance, unsecured loans in general into a mortgage. The reason is that the causes of those debts (the lifestyle) is rarely addressed and the usual pattern is that people will continue to spend beyond their means and rack up more unsecured debt.

However, it's very likely that all these debts were incurred in updating the house itself. If it's these things which actually increased the house value (new kitchen, carpets, bathroom etc) and NOT the rise in the housing market... and you didn't gather these debts by buying a new car, eating takeaways and so forth... then I see absolutely no reason not to consolidate them onto a lower interest rate.

Caveat: be aware that you are converting short-term debt to very long-term debt which will more than likely cost you far more in the long run even if your interest charges decrease.