First time of remortgaging

cam101

Hi everyone, we’ve been homeowners for 15 years but due to house moves and the use of SVR, this is the first time we’ve actually had to remortgage to get a new deal on the same house. We’ve accepted that our payments will be taking a jump, as we are currently at the end of 5 years at 1.84% sadly.
We are currently paying £781 a month debt between us, that’s two loans and a 0% credit card that I’ve set a fixed amount on. Total debt of approx £27,500. I know in most cases it’s the last resort to add to secured debt, but I have read some examples where people have worked out that for a modest increase in the overall amount paid out, they’ve reduced monthly outgoings by remortgaging to absorb debts. We would be happy to accept this if it made us healthier overall financially- especially as the biggest chunk of that debt was renovating our last house that gave us a good ltv boost.
Here are our figures:

House value £392,750 (current lender’s valuation, sounds quite accurate to us)
Outstanding mortgage balance £236,500
LTV 60.2% based on these figures.
Monthly Payments currently £962. 

25 year term.

New likely best rate for a 25 year term, 4.29 for 3 years (£1287 a month) or 4.19 for 5 years (£1273 a month).
When I adjust the figures to add on 27,500, our monthly payment would be about £150 a month higher. This is instead of the mortgage hike and still paying £781 debt a month.

How do I work out how much this would cost us over 25 years? I’m a professional, intelligent person but clearly not a numbers person and I really can’t wrap my head around how to make a well informed comparison. 

Also, my current lender told me over the phone they won’t remortgage with extra money for debt consolidation. Is this common? 

I’ve been at this all day and desperate for some help and advice! 

ACG

Consolidating debt isnt a problem in the main... But it depends on the reasons. If you are living beyond your means and just adding the debt to your home, its going to come back to bite at some point. If it was to pa for a wedding or something then less of a problem. 

The thing you have to consider is whether you take the pain of the monthly repayments and clear it over a shorter term or add it to your mortgage and pay it off over a longer period. 

At your LTV you should be fine, but it might not be for every lender. 

As for the overall cost, its quite difficult to do as your mortgage will be reviewed over and over in the next 15-25 years and the SVR will also no doubt change in that period. 

But just do a mortgage for £27k over however many years, that will give you an idea of what it will cost assuming nothing changes (but obviously it will). 

cam101

Thanks for your reply- when I put into mortgage calculators it would mean a mortgage payment of about £1430 rather than £1270, but would mean a reduction of the current debt outgoings of £781. Seems to make a lot of sense to me as it’s going to be a real squeeze if not, but after my lender said they don’t do that I was concerned that no one will consider it. 

amnblog

We do not know why your current lender will not consolidate your debt for you. There could be specific reasons, for example, if you have a Help to Buy Equity loan, or if affordability does not add up. The only advantage to consolidating your debt is if you pay the extra off in the short term. If the extra goes on your mortgage and is paid off over a decade or more it will cost you too much in interest.

For sensible advice, speak to an independent mortgage broker.

DullGreyGuy

cam101 said:
How do I work out how much this would cost us over 25 years? I’m a professional, intelligent person but clearly not a numbers person and I really can’t wrap my head around how to make a well informed comparison. 

You won't know, at the moment you're not even sure if you will be on 4.19% or 4.29% let alone what the interest rate will be in 10 or 20 years time.

Were it to stay at 4.29% then the total repayment would be £43.7k for a £27k loan but clearly it could rocket up if interest rates spike or be much less if they dropped. 

cam101

amnblog said:

We do not know why your current lender will not consolidate your debt for you. There could be specific reasons, for example, if you have a Help to Buy Equity loan, or if affordability does not add up. The only advantage to consolidating your debt is if you pay the extra off in the short term. If the extra goes on your mortgage and is paid off over a decade or more it will cost you too much in interest.

For sensible advice, speak to an independent mortgage broker.

Thanks for your reply- the lender don’t do debt consolidation full stop, it was before I’d even given all my details that he said this like
 it’s just their policy. I was surprised and wondered if this was common as I thought I’d read plenty of people doing it.

ACG

Who is the lender? I cant think of any who just outright refuse to do debt consolidation so would be interesting to know who it is. 

cam101

It’s the co-operative bank- was platform when we moved

Altior

There doesn't seem any value in adding current debt @ 0% to your mortgage balance. It's actually quite a negative option. That should be left alone, unless there's a compelling reason not to.

The critical analysis in my view would be comparing the other loan terms and rates to the remortgage. And if you have access to any other 0%/better deals as an alternative. 

ACG

I used to work for co-op bank. 

They will work on the assumption the debt will not be cleared, so for affordability it needs to pass with the debt remaining and obviously the larger mortgage. They are not very good for debt consolidation but its not an outright decline.

This is off their website:

Debt Consolidation

We will allow capital raising for debt consolidation up to a maximum of 85% LTV for residential mortgages and a maximum 70% LTV for BTL.

georgehere

Unfortunately, as you say, doing an exact £ for £ comparison is complicated given all the options.

I guess that your loans are on something like 5 year terms, so any amount you move to longer 25 year terms means paying interest for many more years than if you just stick with it as is.

So, for a moment just accept that you are going to pay more and therefore, aim only to do the minimum you need to do to get you through. Changing nothing is the 'cheapest' option - but that's easy to say ... paying out an extra £325 a month is not.

What extra can you really afford per month for the next 2/3 years? Find a mortgage broker and tell them that's your number, then ask them to find you a deal. Tell them you are happy to consider extending the term and also that you are happy to move to a part repayment/part interest only mortgage - they will come up with options.

You don't need to make a 25 year decision here, just a decision that lasts for the next 2/3 years.

We have no idea about your circumstances, focus in on the short term and decide what you can afford to get you to the next mortgage deal in 2/3 years. Of course you have the opportunity here to dig yourself into a big debt hole - or just to do enough to get you through.

(You don't need to do the maths yourself. Get quotes from each lender for the cost of paying off their loan. Ask what the balances are and of the balance how much is interest. The mortgage broker will tell you for each deal they find, how much is interest. Don't forget a broker will likely want you to pay a fee and to pay off a loan early usually incurs an extra cost.)