Borrowing extra when remortgaging good or bad idea?

M0nkeyG

Hi, current pandemic situation aside is it it generally a good idea to borrow a large sum of money when you remortgage? As in, my house was bought for £350k, mortgage owed is down to £300k now and house is worth £425k so I have a decent amount of equity and want to borrow say £50k to pay off a few cards and do some work on the house, maybe do a lump sum on my car pcp too to bring that payment down a bit. So amount I borrow is no more than the original value of the house, and I'd still have some equity. Looking to get a long term mortgage deal as no plans to move any time soon and also means potentially better deal so payments aren't massively different to current (offset by bringing car pcp payments down and cc's paid off, plus hopefully adding a little bit more value with the bit of work to be done too). Mortgage is up for renewal in the new year. Is this generally a good idea or not, and then if you include this whole pandemic rubbish is it really not a good idea right now? I just don't see how else I can borrow that sort of money to do things I want to do and get some of my finances back on track.

[Deleted User]

Don't turn unsecured debt into secured debt.

Get your spending under control and hammer down the cards and loans, highest rate first 

M0nkeyG

Thanks for the reply - why "Don't turn unsecured debt into secured debt" ?

Plan to and have started to do the latter already but some things require a serious wedge of cash

[Deleted User]

If you default on your cards, you get a few black marks on your file. If you default on your car, they take the car back.

If you run into trouble on your mortgage, they take your house away.

Minimise the risk to your most important asset.

M0nkeyG

fair points - I don't plan on making the new deal mean that my monthly payments are drastically different to what they are already, and to offset this by reducing payments elsewhere I would argue that risk is minimal but I get your point and you never know what is around the corner - thanks, it's a thinker

DrEskimo

You just need to be mindful that you are not clearing anything. You are merely shifting the debt to another form of borrowing over a much greater time period (guessing at least 25years). Whilst the interest rate may be lower, the actual amount of interest you end up paying is going to be considerably higher.

Further still, unless you address the reasons you overspent on the cards and buying cars with finance, you will simply end up in this position again in a few years, with the same levels of debt but now a higher mortgage to boot.

The better option will be to minimise your borrowing, work on overpaying credit as much as you can, and then budgeting ahead so you don't have to rely on credit in the future.

Sncjw

Plus no garuntee they will give you the rate your currently at
 You could be paying more per month 

M0nkeyG

I guess if all of the additional borrowing is being used to add value to the house with an extension or something rather than debt consolidation so borrowing money to make money in the long run then that makes sense but.... I want to do a bit of both and wonder how else would one get access to this sort of money, get yourself straight, do a bit of work on the house and basically start as you mean to go on. If the mortgage deal available means my total outgoings are not overall higher than they are already I feel I am making use of the asset that is my house. Cars etc I don't see as assets but just a necessary evil, no savings means no ability to just by a car outright and once you're in the PCP world its very difficult to get out of it. 

Completely agree with the replies above though so I am in a predicament - ideally a quick fix gets me on the right path straight away whilst still maintaining value in my house and having more disposable to actually save each month and maybe be able to get out of the PCP eventually. 

But maybe I just need to get the best deal possible with no extra borrowing, and just tighten the belts even more than we have already and it'll take a lot longer but we'll be in a better position....in the long run. Frustrating though, see others moving house or doing extensions etc and I just feel stuck digging around in a financial hole - it could be so so much worse but its tiring, I think about it every single day! 

MEM62

M0nkeyG said:

I would argue that risk is minimal 

I would imagine that pretty much everyone who has lost their houses in the past argued likewise at the outset.  .  

R_P_W

Unless you are borrowing more to make an investment in the property that will actually increase the value, or using that money to invest in other property I'd say DON'T do it!  work out what borrowing an extra £50k will cost you over the next 20 years.  

All you are doing is kicking the can down the road for future you to deal with, it can look quite attractive now whilst mortgage borrowing is low, but what happens in a few years time if interest rates rise dramatically?

I wouldn't advise comparing yourself against what others are doing either!

MalMonroe

You say 'I have a decent amount of equity' but you don't, because the house isn't yours.  That's one of the mistakes I made when I remortgaged my own property (as I thought of it) some years ago. I thought it was mine but it was really the building society's.

Over the years I have learned the (very) hard way that it is crazy to borrow to clear outstanding debt. You simply add to the debt you already have and you end up paying more back because there's always interest. 

I couldn't agree more with zx81's first comment above. And you may think your risk is 'minimal' but it isn't. 

Because I was plain foolish, thought I knew best and didn't listen to any advisors, I ended up with a DRO a few years ago and now I live in a small council flat. I'm lucky that it's in a lovely rural area and the neighbours are great but if only I'd been sensible I could now still be living in my own detached property with the mortgage paid off and no rent to pay.

You say "Frustrating though, see others moving house or doing extensions etc and I just feel stuck digging around in a financial hole". It doesn't matter what others are doing, and if you feel stuck digging around in a financial hole now, just imagine how much worse that will be if you take on more debt. PCP agreements end, I'm in one myself right now. I am paying a low monthly figure for a lovely car at a very small interest rate. It will end - and you will get out of it.

You have asked people on this forum what they think and they've given their honest opinions. I agree with them - we all say don't do it. Many of us on this site have been in financial difficulty and we have learned by our mistakes. You can now benefit from our wisdom, without making the same mistakes yourself. But only if you want to. 

Take heed of what MEM62 has said. I'm one of those who ended up losing my house.