Is it a good time to get a loan

Sequins4

Hi, so myself and my partner have a couple of credit cards between us that we would like to clear but we also want to finish the work on our house so our plan was to borrow against our house on the mortgage when our term is up July 2025 but I wondered if a loan was a better option to clear our cards and use the rest of the money to finish the house. 

We currently pay out around £500/600 a month each on credit cards to try and clear them and when I looked at how much a loan through my mortgage lender and bank is for £20k over 5 years it’s £395 per month….
my question is if we were to do that now would it leave long enough before we start looking for a new mortgage rate or are we better waiting and adding to our mortgage?

thanks in advance 

Emmia

You shouldn't get a loan to clear your cards, that usually ends up doubling your debts as you will almost certainly still spend on your cards.

I also wouldn't turn your card debt from unsecured (as it is now) to secured (if you add it to the mortgage).

If you really MUST do this (loan or mortgage) then the cards MUST be closed (and no new ones opened) once they're paid off.

Sequins4

Emmia said:

You shouldn't get a loan to clear your cards, that usually ends up doubling your debts as you will almost certainly still spend on your cards.

I also wouldn't turn your card debt from unsecured (as it is now) to secured (if you add it to the mortgage).

If you really MUST do this (loan or mortgage) then the cards MUST be closed (and no new ones opened) once they're paid off.

Yes we would close our credit cards down, it’s more so we can finish the house renovation (which is why we have credit card debt at the moment) so our intention was to add it to our mortgage but I’m wondering if a loan is a better option but I’m concerned about the timing due to our mortgage fixed rate ending next July so wasn’t sure if it was better to remortgage and borrow more through that or to get a loan now as long as it didn’t harm our chances of securing a new mortgage term (we would only borrow more on the mortgage if we didn’t get a loan now)…. Hope that makes sense 

fatbelly

You can move the credit card balances relatively easily to 0% cards.

You will still need a card for purchases

If you need to borrow money, look at personal loans rather than secure more on your property

Sequins4

fatbelly said:

You can move the credit card balances relatively easily to 0% cards.

You will still need a card for purchases

If you need to borrow money, look at personal loans rather than secure more on your property

Thank you, if it was just the credit card debt I would move it to a 0% but we need the extra to finish the house Reno, if we are able to do it now my thought was that our house will be worth more next year once the work is done and when we come to do our mortgage so hopefully the best rate with a better Ltv 

Brie

Do you have the credit worthiness to get a loan?  Any bank will look to see what you already owe, how much credit you are not using plus how much you want to borrow and decide whether you can afford all of that. 

So if you are paying £500+ monthly on the cards now and have (for instance) 30% more you could spend on the cards before maxing them that might mean you would have to pay £800 a month.  Add to that the loan you want that would cost nearly £400.  Can you afford payments totalling £1200 a month?  

Now I know and you know that you will use the loan to pay off the CCs but the bank has no guarantee of that.  You could take the money and use it for your reno.  Or for a trip to Tahiti.  

So maybe you need to throw everything at one card to clear it so you have a daily spending card that you clear each month and then whittle down the other ones as much as you can.

And maybe post a SOA (see the top stickies) on the debt free board to get advice on how best to handle what you're currently trying to clear.  

EssexHebridean

Bear in mind also that your house will not necessarily be “worth more” in the eye of the lender. Its market value might have increased, but unless a face to face valuation is done for the remortgage, that won’t be seen. 

I would second the advice that turning unsecured debt into secured is rarely a good idea. Think also of how much extra that card debt will cost you over however long your mortgage term will be, compared to how much it will cost you if you transfer it to 0% BT cards?

For the additional spending, there are a couple of options you might consider. One is to look at the options for 0% purchase cards - with a budgeted plan for clearing them down. Another is to hold some of the works off while you save the money to cover them - depending on how much the anticipated spend is and how necessary the works are.