Mortgage - Debt consolidation. 27 December 2021 at 7:45PM in Mortgages & endowments 30 replies 1.8K views

london21

MatyMoo said:

The best advice given on the Debt Free Wannabe forum is never to consolidate debts in to a mortgage. You are making unsecured debt secured by doing so and putting your home at risk. 

Don’t do it!

How do they clear their debts, what is the alternative solution to the OP's strategy?

Thrugelmir

london21 said:

Virgin money allow up to 80% LTV for debt consolidation. 

Clydesdale is under the same umbrella as VM. Lending policies may well be very similar. 

london21

Thrugelmir said:

london21 said:

Virgin money allow up to 80% LTV for debt consolidation. 

Clydesdale is under the same umbrella as VM. Lending policies may well be very similar. 

True, I used Virgin money recently and found that with the Agreement in principle I received from Virgin money and Clydesdale were different amounts, ended up successfully using Virgin money for my re-mortgage to release equity for debt consolidation for an unencumbered property.

Ellalou

Yes an ideal world would be clear all the debts without consolidating.  Using one of the many strategies there are.

I do however still see debt consolidation as the best option for us. I’m not naive to the fact that we will pay more money doing it that way (that’s our own fault). But for comfortable living, having young kids to raise and general mental well-being I believe consolidation and getting rid of all debt / credit cards would be more beneficial to us. 

It would leave us with a mortgage for approx £225k, our home is worth approx £290k at the moment so I am content that we are still in a comfortable position.

As I said before this would leave us with our mortgage being our only debt apart from our car payment so then the focus would be on using some of the cash freed up from our debt repayments to pay down the mortgage and also put money away in savings / investments which I believe would put us in a much better financial position? 

Rather than spending the next 3/5 years trying to clear the debt, struggling whilst the kids are growing up and needing more from us and just generally feeling very down about the whole situation! 

I know some will say getting into more debt to pay debt but in hindsight back when we were doing the work to the house, we should have asked for more on our mortgage for home improvements and done it that way! But hindsight is a wonderful thing. 

MatyMoo

london21 said:

MatyMoo said:

The best advice given on the Debt Free Wannabe forum is never to consolidate debts in to a mortgage. You are making unsecured debt secured by doing so and putting your home at risk. 

Don’t do it!

How do they clear their debts, what is the alternative solution to the OP's strategy?

Via careful budgeting, cutting back, using 0% cards so you are reducing the debt not just paying interest. If you start by posting an SOA on the Debt Free board they will help you to see where savings can be made.

Ellalou

Thanks, appreciate the advice. 

Unfortunately I’ve tried to move the cc debt onto 0% cards and have not been accepted so I am paying interest. I am starting to pay down the debt as much as I can at the moment. 

MatyMoo

And what if property prices drop? Or interest rates rise?

When I bought my first home it dropped in value by 20% in the first year, interest rates rose by 2% (it was already in double digits) between making my offer and completion. For the next 3 years I had to work in a pub 3 nights a week (on top of a full time job and studying at night school) just to be able to afford to eat!

Ellalou

Yeah I understand. 

However given that we have stayed in the area for over 20 years and never seen the property prices drop. And I would still have about 70k equity in the property if I remortgaged, I doubt I’d be in that position. 

I have never been in negative equity living in this area having lived in 2 properties. 

I always get fixed rate mortgages for that eventuality with interest rates changing. 

ACG

The way brokers charge differs. Some charge upfront, some on offer, some on completion, some do not charge at all. 

With the money you are saving each month, you might actually be able to consolidate and knock a few years off your mortgage and in turn still have a little extra money each month. It sounds like you have thought about it and what works for one may not work for others. 

With debt consolidation there are additional risks for a broker, so just be prepared that there may be a little extra work involved. 

getmore4less

ACG said:

Speak to a broker. 
I think you only really need to be looking at SOAs if you are spending more than you are earning. If you are going to consolidate this debt and find yourself in the same position in 2-3-5 years time, then you probably need to be looking at reducing your expenditure beyond consolidation. 

The SOA is about knowing where you money is going,  if you want to deal with debts even just a mortgage you need to know where your money goes, just because you have a bit left over every month is a VERY POOR reason not to analyse your finances it a good way to haemorrhage loads of money on poor choices.

The SOA is the foundation of a proper budget and getting the best from your money

Ellalou said:

As far as my previous post is concerned I have have moved on in terms of starting to pay down our debt starting with the smallest debt first however we obviously are still with unsecured debt which I’ve outlined above. 

Highest interest should be first.

The key to clearing debt is freeing up more money you need to know where it is going to do that.

Moving debt to the mortgage might save a bit of interest in the short term depending on the rates but probably end up costing more if you don't follow up with bigger payments.

Also adding  £40k you are proabbly going up a LTV band increasing  the rate on the £180k