cc newbie needs £18k for mortgage shortfall

blue-kat

Please forgive my beginner's questions, I am currently reading through the past messages and the articles, but also under pressure to find financial solutions fast.

We are buying a house,and got our self-cert mortgage offer through, which is £13k less than we need, plus there's fairly substantial fees + moving costs + contingency to cover, £18k should cover the lot. Ideally I'd like to do it as a line of credit, so only borrow as little as needed. Not a lot of time to find it, as rest of chain is waiting for us.

I am wondering about using a cc as a personal loan tool, with intention of paying it off ASAP. I have £7k credit limit on Halifax/visa, interest 8.9% ( I think). I am wondering about asking them to increase my credit limit to access the money ASAP, then apply for a 0% deal and transfer the debt over.

for the rest :
Partner doesn't have a CC at present, he's with Abbey who've invited him to apply for personal loan, but wonder if him applying for another CC would be better option.Depends how long CC/loan applications actually take to be processed?

we are taking the 56% mortgage out on interest only, so after paying off CCs, would then use any extra £s to paying off the mortgage.

any advice very much appreciated !
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blue-kat

Clariman

Hi blue-kat

I don't want to sound negative, but I would take stock of the situation, before rushing ahead and buying the house. If I understand correctly, you are planning to take out an interest-only mortgage but your lender is not giving you a big enough mortgage. Therefore, you are considering making up the difference by borrowing the money on credit cards. Here are some risks/comments that you should be aware of.

* credit cards are a very expensive form of borrowing - far more expensive than mortgages or personal loans. Even if you do get a 0% deal, you can not be certain of getting another one in 6 months time to keep rolling over the additional debt.

* Presumably your lender has lent you what they believe you could afford. If this is not sufficient to buy the house, then I think you need to ask yourself the hard question i.e. whether you genuinely believe that you can afford it.

* Personally, I would not advise anyone to take out an interest only mortgage. Think about it. With an interest only mortgage you are not actually buying the house. All you are doing is paying the interest off and you are doing nothing to pay off the capital amount that you have borrowed. So effectively an interest only mortgage is not much different from renting. So why not rent ?

* As you may have read in the press, house prices have increased dramatically in recent years and there is a very real threat that houseprices could take a bit of a tumble. Do you really want to be stretching yourself this much to buy a house now when you are potentially near the peak of the market ... and to have it on an interest only mortgage ? If you make the decision to go ahead, at least think this through. Hre is a scenario that could happen. You stretch yourself to buy this and then over the course of the next 18 months the value of the property falls by 20% but you are still paying a mortgage interest only on the price you pay today. Would you feel OK with that ?

I would be interested to hear what others have to say, but I would be very wary indeed of going down this route.

Clariman

blue-kat

Hi Clariman
thanks for your common sense and concern.
we are probably in pretty unusual posisition, and do have good reasons for choosing this set up - we have no other options !
Living in current unsuitable housing (paid outright) for long time has taken it's toll, we really desparately need better housing.

it's been a tricky job selling our house due to structural problems, so really want to grab this sale and be grateful.

after we've paid off CC (or other debt) we will then change priorities to paying off mortgage, by means < £500 overpayments allowed per month,and will prob need to change deal when the fixed interested rate goes up after 2 years. but being on interest-only for 1st 2 yrs will give us a head start

we will be getting help with all or large part of the interest payments, and looking to inheritance to paying off bulk of the mortgage in time.
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blue-kat

Clariman

Hi blue-kat

I hope I haven't put off others from replying to your question, by being mr Cautious, so let me have a stab at your questions themselves.

It sounds to me as if you want a loan but you want to be able to pay it off quickly. Here are my thoughts on credit card versus personal loan.

personal loan

• Lower interest rate than credit cards
• Generally less flexible in terms of being able to pay off early
• If you go with a loan, either (a) work out your payments and go for a fixed one or (b) find one that you can pay off early without incurring penalties

Credit Cards

• More expensive than loans (i.e. higher interest rate)
• Can pay off as much as you can afford without penalty
• The flexibility may leave you temtped to not pay it off so fast e.g. you may say "oh rather than pay another £200 of that debt, why don't we go away for the weekend and skip this month's payment"
• 0% deals could be a good way of getting cheap debt and my experience has been that I have been able to rollover 0% credit cards for over 2 years, but it is getting harder. However, my situation is different. If I could not get another 0% card, then I have the cash to pay it off in full tomorrow.
• If you go down the 0% route, you must work out how much your interest payments would be if you could not get another 0% deal in the future. In other words, check that you can afford to make the interest payments on a normal credit card and see any 0% intro periods that you can get as a bonus. I think that is crucial otherwise you could come seriously unstuck.

HTH
Clariman

Beano

My advice would be to avoid the credit card route and opt for a loan instead.
One of the biggest problems you will have if you go down the credit card route is getting the cash out of your credit card without incurring fees and most likely a high interest rate (Halifax tend to charge significantly more for cash/cheque advances than their standard rate).

It might be worth posting this in the loans forum as well.

Chadsman

Blue Kat, have you considered...
1. a life of balance CC eg: Texaco 3.9% (though anecdotal evidence suggests they can be less than generous with limits)
2. a low rate credit card- MBNA recently offered me a long term variable rate of 7.9%, I think Capital 1 also do a similar card.
3. a cheap overdraft eg: Nationwide 7.75%, A&L 0% for 12 months then 7.9%
4. Do you have any relatives who trust you sufficiently to take out one of the above loan you the money and have you be responsible for the repayments and interest. You mentioned you hoped to pay off (some of) the debt with inheritance- could you persuade Granny/Grampa/ANOther to loan you an advance?

...or some combination thereof.
Just my thoughts, not advice.
DYOR,
HTH.

blue-kat

thanks all very much - really helpful to get your opinions on pros and cons, and fresh look at options.
I'm a fresh thinking cap on tomorrow and work through all the variables, and hopefully sensible workable solution will become evident !
many thanks
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blue-kat

kinesin_2

If the per month cost of an interest only mortgage is more than you can rent for, then you are far better to rent.

An interest only mortgage *is* renting your house from the bank, plus having to pay for upkeep, new boilers etc etc etc. IMO it sounds far better to stash the cash in nice savings account, use the monthly interest to pay towards the rent, don't pay any buying fees etc etc and in current market you should be able to get at 10% of monthly rental fees, maybe more as there are too many empty houses/flat that for Landlords - some rent is better than no rent.

House prices are going down and will keep going, the economy is stalling and consumer spending has stopped, jobs are going at banks, retail and other areas. This are going down, and in this sort of economy you may lose your job - been mobile, not having negi-eq is going to a blessing.