Fixed term mortgage due - 20k debt - Is it worth securing against the house

BikingBud

Sharp1986 said:

I've got a target of 7200 by January 1st based on what I've just worked out. So if come January the mortgage is 1200 and what I have been paying on debt is 500 then I am going to start paying 1700 now as that will indicate how comfortable I will be come January and will force me to look at things. So from now till January going to set a standing order to my debt account of £900. Be interesting to see this as that just sounds ludicrous  

Are your investments £7.5k and the £5k in other assets pulling their weight? Could they do better elsewhere?

When does the interest free on the 22k run out? What is it likely to go to? This might be your primary target as finding that goes to a significantly higher rate may cripple other options.  Attack highest rate first.

If you want to be be brutal chop out the £700 ents either wholesale or redistribution from other areas this can give you £1300 excess per month v current estimate of £654, £10400 (without interest) after 8 months, approx half your debt as well as the £500 per month already being paid. Stick in high interest account at >3.5% and then add 2 months (year end) of council tax ~£400 to go against the debt. Short term pain may give you more freedom downstream when other, increased cashflow kicks in.

What are you expecting/planning the house rate to go to? How soon can you lock into a new rate? Keep an eye on this and consider if any potential early repayment charges may be offset by sourcing and locking into a good rate for 2/3/5 years, eg how much will you have paid by Sep 25/26/28, including ERC versus the possibility that rates will change by Jan 24, you should also consider impact of different fees if you expect to remortgage after 2 years or 5 years.

Locking into 5 years may also give you a period of limited financial scrutiny and stability of outflow, this with increased cashflow should give you options to reset the priorities and finance other plans that may not be upset by life changes such as new sofa or kids.

enthusiasticsaver

The answer is most definitely no do not turn £20k of unsecured debt into secured. If it is coming down by £500 and you have a surplus of £650 even with the £700 entertainment(I assume that is the £80 per week you both take?) then you can reduce that £22k down by January when your mortgage repayment will undoubtedly increase. Maybe you could reduce that weekly amount when the mortgage payment increases.

flipflopflo

Another thing to think about is when your partner is on maternity leave what is her pay likely to be? How long is full pay, half pay, no pay. 

Also when she goes back to work there will be nursery fees to find and they aren’t cheap. 

So you are going to have to think about saving money for things like these sort of things. 

What does that entertainment budget go on?

 I would also say that the medical bills need to be budgeted for to. 

Sit down and go through your bank account/s for the last 3/4 months and put all your spends in categories on a spreadsheet to see where it is leaking. 

kimwp

Just a note that if you have a child, you'll need to pay around £11,000 a year in childcare unless you have help, so it makes sense to aim to pay your debt off at about the same rate - though obviously maternity pay and other childcosts will make this a challenge.

You say you are tight with big spends and generous with every day, but £500 on a wardrobe is nowhere near being tight and it's the everyday overspend that really adds up. If you are not going to perpetually be in debt, then you will need to change your perspective - while many earn less, what you earn is not particularly high for a family.

Edit- I've been pondering my comment and actually the wages are a a decent amount for a family.

Sharp1986

kimwp said:

Just a note that if you have a child, you'll need to pay around £11,000 a year in childcare unless you have help, so it makes sense to aim to pay your debt off at about the same rate - though obviously maternity pay and other childcosts will make this a challenge.

You say you are tight with big spends and generous with every day, but £500 on a wardrobe is nowhere near being tight and it's the everyday overspend that really adds up. If you are not going to perpetually be in debt, then you will need to change your perspective - while many earn less, what you earn is not particularly high for a family.

£500 for a wardrobe after using clothes railes for 17 months is being tight. 

Sharp1986

Thank you for your responses. Clarified what I already know but sometimes good to hear it away from personal bias. Going to try and knuckle down over the next 6 months to see how feasible it will be come January. 

Someone asked about investments being best placed elsewhere - no, I'm very confident where they're at, I'm envisaging treble todays value over the next few years bar a black swan event, they were risky when I invested in a certain company but they've derisked over the last 3 years considerably. 

EssexHebridean

Sharp1986 said:

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]

Number of adults in household........... 2

Number of children in household......... 0

Number of cars owned.................... 1[b]

Monthly Income Details[/b]

Monthly income after tax................ 2278

Partners monthly income after tax....... 2300

Benefits................................ 0

Other income............................ 0[b]

Total monthly income.................... 4578[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 809 But increasing by over £400 when your fix ends, yes?

Secured/HP loan repayments.............. 0

Rent.................................... 0

Management charge (leasehold property).. 20

Council tax............................. 200 Paid over 12 months, or 10?

Electricity............................. 70

Gas..................................... 160

Oil..................................... 0

Water rates............................. 35 Can you switch to a meter to save money? If you ARE metered then this sounds high. 

Telephone (land line)................... 0

Mobile phone............................ 55 You will be able to do far better here once contracts are ended.

TV Licence.............................. 14 

Satellite/Cable TV...................... 45

Internet Services....................... 30

Groceries etc. ......................... 450 This is on the high side.

Clothing................................ 40 You do definitely save this, yes? 

Petrol/diesel........................... 200

Road tax................................ 20

Car Insurance........................... 50

Car maintenance (including MOT)......... 40 Does this definitely cover everything? Tyres, wiper blades, servicing? A contingency element?  Your mileage is not particularly low so this amount for maintenance feels a bit low to me.

Car parking............................. 60 Ouchy - can anything be done to improve this? Park a little further away and walk for example?

Other travel............................ 0 

Childcare/nursery....................... 0

Other child related expenses............ 0

Medical (prescriptions, dentist etc).... 10.8

Pet insurance/vet bills................. 0

Buildings insurance..................... 15

Contents insurance...................... 15

Life assurance ......................... 0 If anything happens to one of you, can the other continue to pay the mortgage and other bills alone? If not then you need to do something about this. At the least there should be diminishing term insurance to cover the mortgage. 

Other insurance......................... 0

Presents (birthday, christmas etc)...... 0 How do you cover presents that aren't for each other - family, joint friends etc? 

Haircuts................................ 30 I think this needs to come from your pretty healthy personal spends, no?! 

Entertainment........................... 700 This is your personal spending money I take it? See more about this below * 

Holiday................................. 150 You are definitely saving this? And does that amount cover everything relating to your planned holiday? 

Emergency fund.......................... 50 Again - you are definitely saving this? Is that £1000 cash assets your basic EF? 

Spotify................................. 5.99

Union................................... 14

ISA..................................... 12 ISA as in "tax free savings"? why, allowing you aren't anywhere NEAR the tax payable threshold? 

Window Cleaner.......................... 16

Gym..................................... 72 Needs to start coming from each of your personal spends.

Eyes.................................... 35 Needs to start coming from each of your personal spends.[b]

Total monthly expenses.................. 3423.79[/b]

[b]

Assets[/b]

Cash.................................... 1000

House value (Gross)..................... 380000

Shares and bonds........................ 7500

Car(s).................................. 900

Other assets............................ 5000[b]

Total Assets............................ 394400[/b]

[b]

Secured & HP Debts[/b]

Description....................Debt......Monthly...APR

Mortgage...................... 260000...(809)......1.52[b]

Total secured & HP debts...... 260000....-.........-   [/b]

[b]Unsecured Debts[/b]

Description....................Debt......Monthly...APR

Debt...........................22000.....500.......0 Apologies if already mentioned and I've missed it, but this is 0%? For how long?[b]

Total unsecured debts..........22000.....500.......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 4,578

Expenses (including HP & secured debts). 3,423.79

Available for debt repayments........... 1,154.21

Monthly UNsecured debt repayments....... 500[b]

Amount left after debt repayments....... 654.21 Big question - where is this money?[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 394,400

Total HP & Secured debt................. -260,000

Total Unsecured debt.................... -22,000[b]

Net Assets.............................. 112,400[/b]

[i]Created using the SOA calculator at www.stoozing.com. 

Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

OK - comments in bold above as usual. I will say though that the idea of you securing debt on the house makes me really twitchy - at least in part the debt has occurred due to you trying to live an aspirational lifestyle, and I think perhaps the first thing you need to do is to start learning whether really, the way you are spending your money currently is actually creating happiness for the long term? 

* personal spends: The amount you budget is high - but, cards on the table, it's lower than my household budgets for personal spending. The difference is that we are currently free of mortgage (overpaid to clear it early) have zero consumer debt, we pay half the amount you do for grocery shopping in the average month and our personal spends cover all toiletries, haircuts, clothing purchases, my prescription prepayment etc, opticians costs, my gym membership, the other half's rugby club subs...  We both also save a proportion of our allocation each month. For people in debt though, it IS higher than we would usually expect to see. If you're going to retain it at that level, I'd suggest that the first thing you need to do is instigate a rule that it covers ALL personal and entertainment spending - which will free up £180 a month from your budget to transfer straight to debts. It might also focus both of your minds a little on budgeting - if the Mrs wants her hair done in the month for example, she is going to have to make a decision about whether that then becomes more important than a nail appointment - or whether one or the other can stretch an extra week...At the moment you're justifying the amount you allocate to personal spending by saying "it covers all these things" but arguably there is actually an additional £2k a year being spent on the stuff that you believe is being covered. Having to cover anything you want on a personal level from personal spending/savings REALLY helps to prioritise the things that are important too!

You mention wanting to try for a child - could I ask how you plan to cover the additional costs that will entail? Either loss of income or childcare costs will eat up a bit chunk of budget, before you even consider all the other peripheral costs. By far your best position to begin that new phase of your lives together would be a debt free position - and similarly, actually clearing the debt will become ever harder once you do have that lower income/additional costs to factor in. 

The biggest question from the SOA is of course the £7800 per year that should be your surplus - so first thing for my money is that you need to track that down. That in itself underlines that you aren't currently budgeting I'm afraid - otherwise either the debt would be dropping by more each month, OR you would have a lot more savings in the  bank than you have currently! 

Don't consolidate. Instead, start making savings, budgeting, and actually keeping track. If you can reduce your groceries by £100 a month (very doable) regain the £180 per month from the stuff being spend from household budget on personal spending, and track down your surplus, then that gives an extra £900+ a month to pay against the debt in addition to the £500 you are currently paying - that  means that in less than a year and a half you can have the debt cleared. Anything additional that you can make savings on, can either go to bolstering the emergency fund or again, it can go towards the debt. 

One final thing - I would suggest that you step away from the gambling for a set period. It clearly is habitual and that is a bit of a red flag...and if you are feeling in the least bit defensive about it being mentioned, that is another one. If it's not a problem, then stopping for a while to free up a small amount of money for other things is no issue, and you can always have an occasional flutter in the future if it brings you joy, but it would certainly be a good idea to stop the habit in its tracks occasionally I'd suggest. If stopping proves to be any kind of issue though, you need to react to that sooner rather than later. 

Wonka_2

As someone who's done it I'll lay the other side on the table

We added £30k of unsecured debt onto our mortgage but 

a) we were mid/late-40's with teenage kids
b) we had 7yrs left to run on mortgage and extended to 10yrs
c) We fixed for the 10yrs @ 2.39%
d) Early retirement (for me)/pension lump sum/end of mortgage and end of uni for kids will all align in 2027
e) we both had secure jobs with long tenure/good severance packages if things did go wrong

Do I regret it/think it was the wrong decision for us - no, not at all

Would I do it your situation/current market - not a bloody chance - you've far too much scope for property devaluation, loss of job(s), kid costs and general market situation vs your ability to trim things now and get yourself out of the hole.

Whilst doing it is not your last resort it doesn't leave you many places to go if you then either don't change your behaviours/spending patterns or you have an unexpected issue down the line

Sharp1986

I always like to provide updates. 

We didn't do it. 

But we did after take on new debt when the car was written off.  

EssexHebridean

Sharp1986 said:

I always like to provide updates. 

We didn't do it. 

But we did after take on new debt when the car was written off.  

Well good and bad then - although it's to be appreciated that sometimes debt is necessary, and if you need a car, and there is a shortfall on a payout to make a replacement in those circumstances, it can't always be helped.

Hopefully though this will underline the necessity of an emergency fund - hopefully the £1000 you had there meant you needed to borrow less additional money than you otherwise would. Now you need to focus on rebuilding that. Hopefully also, you made the decision to replace with a car just suitable for your needs, rather than taking it as chance of a "bells and whistles" upgrade...!  

Thanks also for the update - it's always nice to hear the outcomes of threads, and all too often we're left guessing!