Remortgage or secured loan?? please help

lea

I was wondering if someone could give us some advice.
My parents have approx £45,000 of unsecured debt-£22,000 loan over 7 years with lloyds, and the rest on various credit cards (one of them being capital one at 3.9% life of balance). The total amount for the repayments is almost £1000 per month and they are struggling to meet the repayments. They are determined that they want to consolidate to one repayment each month.
Their house is worth approx £150,000 and they have an on-track endowment mortgage due to end 2012, for £19,500.
Please can someone give some advice as to whether the best option would be to remortgage or to get a secured loan. Mum and Dad's annual income is approx £35,000. They would ideally like to repay over 15 years.

Any advice gratefully received

Thanks
Lea

mrcow

Hi Lea

Personally, I think they'd be nuts to secure this debt on their property.

Just to bring them down to earth for a moment.....a quick look on moneysupermarket.com on typical secured loans as you're describing indicates that over 15 years, they'd be looking to pay over £75k on an initial debt of £45k.

If these debts are mainly credit cards etc. then they need to take a serious look at their spending. If they don't do this, but still secure this massive debt on their house, then they will be putting their home at risk.

They are determined that they want to consolidate to one repayment each month.

Why?
Have they been watching too many adverts on the TV? (no offence intended!!)
Even if it means that they'll be paying over the odds for it?
What deal do they think is going to be cheaper than a 3.9% for life of balance?

I would say that first of all, they need to list out what they are paying to whom and at what rates, and then take a good look at their expenditure and devise a workable budget with a realistic repayment plan, switch expensive credit to less so where possible and snowball their debt repayments as they progress.

It's hard, but if they don't do this, they could potentially throw thousands down the pan...even if they go for the mortgage route, long term loans work out very expensive over time. IMO, it would ALWAYS be last resort.

margaretclare

Your parents want to pay this £45,000 debt over 15 years. As mrcow so rightly says, this is going to cost them huge amounts in interest. In addition, securing this £45,000 on their home is extremely risky. As the ads say (in the small print) 'Your home is at risk if you do not keep up payments...'

You don't say how old Mum and Dad are. But things can change a lot. What would happen to this huge debt secured on their home if either of them died.

They have a reasonable annual income - £35,000. I can't see why they can't tighten their belts and start making serious attempts to pay off these debts in the way Martin and others advise on this site. If they're old enough to be parents of an adult child then they're too old to be taking this kind of risk with the roof over their heads.

Pay off the debts in order of highest interest. It's crazy to think of changing from 3.5% life of balance to a secured loan at a much higher rate of interest! Concentrate on paying off the Lloyds loan first, then the credit cards one by one. It might be an idea to move the balance of the other credit cards to Capital One, that's assuming that they're at a higher rate of interest than the loan.

Your parents don't know what's going to happen in the next 15 years! This really is a silly idea.

Aunty Margaret

lea

Thanks for your advice.

I wouldnt normally have thought remortgaging or getting a secured loan would be a good idea, but the real problem is that they are starting to get refused credit elsewhere.
The 3.9% life of balance card has only a 6k limit, which has been maxed. The rest of the approx 17k debt is on higher interest cards, all about 12-15% apr I think.
I have gone through with them and done a spreadsheet of what goes in and what goes out of the account each month, and we have shaved off what we can and they are sticking to it.
However they are really struggling with finding £1,000 a month for all the minimum payments, and I just don't know what else to suggest to them.
I know paying 30k interest on a 45k debt seems mad but we just don't know what else to do.
Sorry for waffling on

Thanks
Lea

debtbuster2K5

Hi Lea,

A Cross Post onto Debt Free Wannabe might help you. If you could post up the full details of the debts including APR, minimum payments etc. Then post all incomings and outgoings. From there we may be able to better advise you.

Regards