Remortgage to pay off debt

weston800

During covid (inc job loss) for my husband, we’ve wracked up £50k debt (over 9 credit cards). Thankfully he is now full time employed. We are making required payments on time for our debt and always try to pay extra when we can. 

We are due to select a new mortgage rate in Jan 2024 but can apply as soon as October and we were considering looking at remortgaging to pay off the £50k debt - is this possible?

Joint income £60k, aged 34 & 32
House value £210k
Owed on mortgage £126k
Years left on mortgage 25
Current rate (until Jan 24) 2.1%

Monthly mortgage payment £523

We are paying £700-£900 every month off debts; they are currently interest free but I am having to do balance transfers to keep it this way. 

I know we would go from unsecured debt to secured debt but we feel this would better suited to us and we could finally start using disposable income to do the house up etc. 

I know mortgage rates have gone through the roof so I don’t even know if we’d be accepted a remortgage - our credit scores are stable but we are utilising nearly all available credit and I know this doesn’t sit well with lenders. We plan on going to see a mortgage advisor when the time comes but we’re just looking for some advice at the moment. 

Thank you. 

EssexHebridean

it is possible, however, give this some thought. You currently have an amount of credit card debt - unsecured, on which you are making the required payments. If the house of cards falls down around your ears again, and you find yourselves no longer able to make those payments, then the worst that would be likely to happen, even if you stopped paying everything overnight, would be that you'd get some letters. Maybe a phone call or two. Now, consider what happens if you transfer that debt to your mortgage - and THEN find yourselves unable to make the (now increased) monthly payments - yes, hopefully you're there ahead of me - you lose the very roof over your head.  

There is almost never a good reason to convert unsecured debt to secured - it's just a risk that you don't need to take. Another good reason for this is that you are already thinking about "what you might do with the disposable income it would create" - when in fact if you WERE to take that path then the surplus income at that stage should really be set aside against overpaying that then increased mortgage. Take a step back - think about finding the right path to you to get debt free in the first instance. Build your emergency fund

You've got a massive advantage with the debt currently being interest free - and if you can continue keeping an eye on things and shuffling to balance transfer cards when deals end, then you can make a decent impact. It might help you to put together your SOA (Statement of Affairs) and post that into the thread too - it may well be that we can find savings hidden in there that you've not spotted - it's amazing how hard it can be when you're in the middle of a situation to see what to someone on the outside can be an obvious route to making a cut in outgoings!

Take a breath, then knuckle down and start the process of getting the debt gone, rather than hiding it - it's almost not possible to stress what a dangerous path you're considering. "Going through the process" is often the single most important thing in preventing debt from becoming an endemic problem in a household - most of the "short cut" routes are more akin to just sticking a plaster over a gaping wound - it might stop it dripping blood on the carpet, but it doesn't actually start the healing process, in itself. It's the reason why a lot of folk who've paid off debt with a windfall, or who have consolidated, find themselves back at square one a few years later. 

Grumpelstiltskin

Right 2 relatively young adults, no children, a good income.

You need to do as EH suggested, complete a SOA ( format it for MSE and copy and paste on here)

Then you may need to knuckle down for a while and do everything you can to bring the debt down.

It will be possible, but it will involve work. It won't happen overnight but in the end it will be worth it.

Stateofart

I wouldn't put unsecured debt into secured tbh.  Also, doing this will end up costing you a lot more over the years of a mortgage.  The third issue is have you learnt not to spend above your means?  Many people who do this, or 'consolidate' their debts, it's too easy and fress up all those cards for additional spending, leaving you in another mess down the road.

EssexHebridean

Stateofart said:

I wouldn't put unsecured debt into secured tbh.  Also, doing this will end up costing you a lot more over the years of a mortgage.  The third issue is have you learnt not to spend above your means?  Many people who do this, or 'consolidate' their debts, it's too easy and fress up all those cards for additional spending, leaving you in another mess down the road.

On this occasion it would seem that at least a chunk of the debt followed one member of the household losing their income due to issues around Covid - so not a classic "spent above means" situation. however, it would also appear that this may not be the OP's first rodeo, so...

Your point on consolidation is spot on - for consolidation to be effective it requires the same self discipline and financial understanding as any other form of successful debt clearance - namely an appropriate and accurate budget, the means of creating surplus to pay to clear the debt, and an avoidance of use of further credit other than in very clearly defined circumstances until such time as the debt is cleared. 

kimwp

weston800 said:

I know we would go from unsecured debt to secured debt but we feel this would better suited to us and we could finally start using disposable income to do the house up etc. 

I think this is the key part of your thinking to consider.  What you are thinking of doing is converting unsecured to secured debt so you don't have to put the effort in of finding 0% cards and budgeting and instead spend the money on other things. 

By doing this, you will increase the risk of losing your home and it will cost you more as it will take longer to pay off. If you do it, at least make sure you build up an emergency fund and save for each big house expense rather than taking out credit.

weston800

Thank you for the comments and advice, I will be completely honest in saying that we have been in debt before (£40k) - we paid it off with inheritance and then used the balance for the deposit on our first (and current) house. We closed all credit accounts and vowed to never get into debt again, it slowly crept to £9k (home improvements) - manageable but then my husband went self-employed, covid hit and then he ended up having no work. During this time we were both earning less than what we are now (around £10k joint p/a) We were also saving for our wedding & honeymoon, we then had to use these savings to live meaning the wedding & honeymoon went on credit (£20k) - after 3 years it's ended up hitting £52k. My husband has been PAYE for 2 months now and we've not had to use any credit in these last 2 months - we have paid a little over the minimum payments too. 

I have completed the SOA below and have been completely honest, you will notice the large expense on tobacco and alcohol; whereas this will come as a shock to most of you, please try to understand that my husband is working hard on his alcohol misuse issues - he used to spend a lot more than £365 a month so it's actually a positive in my eyes. I'm not asking for sympathy, we are on a journey and getting there slowly - I just wanted to be completely honest.

We have been in debt before as mentioned but I do feel as though we're mentally stable to not get into this situation again (if we were to pay it off by remortgaging).

Grumpelstiltskin

Even with the large alcohol and tobacco spend you still show that you have nearly £500 left over. Where does that go?
Groceries at £400 is large for just 2 people bearing in mind you have all the extra for alcohol and tobacco.

weston800

Grumpelstiltskin said:

Even with the large alcohol and tobacco spend you still show that you have nearly £500 left over. Where does that go?
Groceries at £400 is large for just 2 people bearing in mind you have all the extra for alcohol and tobacco.

Pet food costs us £140 per month - that’s in with the groceries. 

Honestly, I don’t know where the disposable goes - I guess the odd trip to the cafe/takeaway, gardening items, things that are just spent spontaneously without being accounted for 

RAS

Three things.

I hope you've got contents insurance tied up with the building insurance? If not, you need to sort that out.

You have no emergency savings, you need £50 per month in there as home owners. It would only take a small leak to screw up you existing situation.

If you've got £6,000 a year going AWOL, you'll be back with that amount and more debt on credit cards within a year. You both need spending diaries.

But short-term, download the last 6 months' statements for all cards and allocate every farthing to a category, so you know where you are leaking cash. It may be lunches at work, lattes, takeaway, but you need to know.

Don't even contemplate securing debt (bad idea anyway) when you're mislaying that sort of money each year. 

weston800

RAS said:

Three things.

I hope you've got contents insurance tied up with the building insurance? If not, you need to sort that out.

You have no emergency savings, you need £50 per month in there as home owners. It would only take a small leak to screw up you existing situation.

If you've got £6,000 a year going AWOL, you'll be back with that amount and more debt on credit cards within a year. You both need spending diaries.

But short-term, download the last 6 months' statements for all cards and allocate every farthing to a category, so you know where you are leaking cash. It may be lunches at work, lattes, takeaway, but you need to know.

Don't even contemplate securing debt (bad idea anyway) when you're mislaying that sort of money each year. 

Thank you for your reply. Yes contents and buildings combined