Advice Please

Needcash_3

Hi All,

I would really appreciate some advice here as I have had a tendency, where money is concerned, to take the 'easy/ quickest' route back to solvency in the past through taking out loans, credit cards to bail me out. Have come up with a 'little plan' .... is it a good one?

I took out a £125k mortgage in November 2002. A couple of re-mortgages later and I'm now on a £154k mortgage which is split as follows:

£109,989.66 (5.95 % APR) - monthly payment £545.67 (Interest Only portion)
£34,544.85 (5.95% APR) - monthly payment £240.63 (Capital Repayment)
£9,979.76 (5.99% APR) - monthly payment £74 (Capital Repayment) - I took this out in November 2007 to clear some debt

Anyway, since Jan 1st, I have been budgeting like crazy and have vowed to not run up any more debts, have been doing well.

Apart from my mortgage, I have a £6,900 loan, current settlement fee is circa £6,200 (6.9% APR), a 0% Barclaycard at £4,500 (runs at 0% until Feb 2009) and a car loan, circa £7,000, 6.9% APR.

My current monthly repayments are as follows:
£170 - I currently rent out my flat and it costs me a £170 shortfall to make up the mortgage per month.

£101 - Credit card minimum payment

£168.54 - Loan payment

£172.95 - Car payment

£200 - Saving to a 10% regular saver account with a view to using the lump sum to pay off my loan early

The last time I spoke to my bank, they offered me the option to add more on to my mortgage if I want to. Got me thinking ..... Is it worth putting the loan and the car loan on to the mortgage? That way I could re-coup the £170 per month that I'm paying towards the mortgage from the loan, use my regular savings to clear the credit card after the 14 month 0% deal is up and hopefully over pay on the mortgage. My current rental contract is up in Aug, I hope to down size then and free up an extra £200 per month in saved rent and smaller utility bills.

Hope this all makes sense and I've posted to the correct forum???

Should I post a current SOA ?

Hope somebody out there can advise

Thanks,
NC x

Moneygoes2money

Hi NC

The upside of adding to your mortgage is possibly being able to borrow at a rate lower than the existing debt, however, the downsides are the debt is secured against the property, which puts your home at risk, and is repaid potentially over a longer period of time thereby making it more expensive in the long run.

Also, what interest rate is your mortgage lender offering and will the mortgage lender charge any fees for adding to your mortgage? If so, this may negate the saving made by acquiring a lower interest rate.

When do the existing loan and car loan end?

Do either of the loans allow part repayment without penalty?

So are you living in the mortgaged property, which you rent out and the person renting from you pays rent that covers all but £170 of the mortgage?

Needcash_3

Moneygoes2money wrote: »

Hi NC

The upside of adding to your mortgage is possibly being able to borrow at a rate lower than the existing debt, however, the downsides are the debt is secured against the property, which puts your home at risk, and is repaid potentially over a longer period of time thereby making it more expensive in the long run. (Yeah, will be able to pay off loan and credit cards in about 18 months if I snowball them, probably makes sense to just concentrate on paying them off .... also no fear of losing house if I can't pay off secured debt)

Also, what interest rate is your mortgage lender offering (5.99%) and will the mortgage lender charge any fees for adding to your mortgage? (No) If so, this may negate the saving made by acquiring a lower interest rate.

When do the existing loan and car loan end? (Got about 3 years left, but can probably clear the loan in 12 months if I knuckle down)

Do either of the loans allow part repayment without penalty? (No, that's why I'm saving to the 10% saver every month, will use that. Was considering building up lump sums of savings, then applying for smaller loans a couple of times so that I can 'part pay')

So are you living in the mortgaged property, which you rent out and the person renting from you pays rent that covers all but £170 of the mortgage? (I'm renting out the mortgage property, I live elsewhere. The difference between what the mortgage costs and what I get in in rent per month is £170, I subsidise this myself. Trying to get the mortgage down to a point where I at least break even eventually)

Hi, thanks for advice, have answered points above. On contemplating your response, I think I should probably leave the mortgage alone and stick with the loan/ credit card repayment plan as is. Will look at the car later, at least it's worth more than the loan so that's good ... thanks again :beer:

Moneygoes2money

If you're a bothered about the £170 a month shortfall, you could ask your lender to switch part of your repayment mortgage to interest only just for a short period of time so that your monthly payment is equal to the rent until such time as you are able to switch it back.

Alternatively, you could ask your lender to increase the term of your repayment mortgage (providing there is no charge) as this will also reduce your monthly payment then you can switch it back again when you are able to do so.

Trying_to_be_good

You sound like you've thought it through now - and are doing a good job! Stick to it, and clear the debts first, then concentrate on the mortgage.

Well done!

Needcash_3

Hey Trying To Be Good,

Thanks for the words of support :beer:

Yeah, I have had impulsive tendendencies with money before, i.e., impulse buying, taking out loans and re-mortgages ..... thinking this one through with you guys has been good for me. Will stick with the debt repayment plan (and not run up anymore in the meantime!!!)

Thanks again,
NC x

Moneygoes2money

NC

It makes sense to keep the credit card debt at 0% even if when you have enough money to pay it off in full because the money is in your account earning interest whilst not costing you interest (known as stoozing).

About 4-6 weeks before your current 0% deal expires, apply for another 0% deal, Ulster Bank are currently offering 0% for 6 months with no fee.

Then if the debt still exists you could go for a further 0% balance transfer card with a fee like Virgin, or life of balance transfer rate where the rate stays low until such time as the debt is repaid. Have a look at the credit card forums for more info.

Needcash_3

Moneygoes2money wrote: »

NC

It makes sense to keep the credit card debt at 0% even if when you have enough money to pay it off in full because the money is in your account earning interest whilst not costing you interest (known as stoozing).

About 4-6 weeks before your current 0% deal expires, apply for another 0% deal, Ulster Bank are currently offering 0% for 6 months with no fee.

Then if the debt still exists you could go for a further 0% balance transfer card with a fee like Virgin, or life of balance transfer rate where the rate stays low until such time as the debt is repaid. Have a look at the credit card forums for more info.

Thanks Moneygoes2 money, I really appreciate all your advice here. But I'm a bit like a dog with a bone here !! ..... had another thought ..... ask the bank to put my total mortgage on interest only for a year (current tenant has just signed up for another years rental) ..... Pay off the loan and credit card in a year with the spare cash out of the mortgage (kind of like re-mortgaging but not securing the debt). Or just keep 'stoozing' the credit card as you mention here ... then start tackling the car loan maybe. After a year, put the whole mortgage on capital repayment and overpay ..... mortgage will be 18 years to run by then, with the overpayment, I can get it down to 11 to 12 years- ish ..... since our chat yesterday I've decided to definitely not re-mortgage. What do you think of this though ...... (sorry If I should just shut up and just stick with the repayment plan :-) ..... have got an over active imagination ... lol)

Moneygoes2money

Hi NC

Feel free to ask as many questions as you like!

I like the idea of putting the whole mortgage on interest only in the short term. Let's face it, most landlords have interest only mortgages on their Buy-to-Let properties. Having all or some on repayment is always better as it is a hedge against falling property prices but in this situation I don't see the harm in putting the whole mortgage on interest only for the short term.

Incidentally, what is the value of the property?

The rule of thumb is to pay your most expensive debt first. Both loan and car loan appear to be the same at 6.9% APR and have about 3 years left although I note you believe you can clear the loan in about 12 months as this has a lower balance outstanding.

So I agree you should focus on clearing loan in 12 months, which, when you achieve this, will mean you are £168.54 better off every month.

You can then redirect the £168.54 to the next most expensive debt, which will be your car loan then you will be £172.95 better off every month. When the credit card 0% deal is nearing its end, shop around for another 0% deal or low rate for life, whichever is most appropriate at the time. You dont need to worry about this now though.

If you need to raise some additional funds, are you aware of the cashback website called quidco.com?

Needcash_3

Hi Moneygoes2money,

Thanks so much for this .... all looks so much clearer now. Just got to get the bank to agree now, but seeing as they've offered me another re-mortgage and my tenant just signed up for another 12 months, I can't see any reason why my proposal would be viewed as an overly risky one. A bit worried as to what to say my reason for wanting to switch to interest only is ... I fear if I tell them it's to clear my loans then they'll suggest/ encourage that I re-mortgage .... any ideas what to say to them ?

My property was worth £210k around November 2007 time, but I know there's been a slight down turn recently. Good thing is that it's in London, I think that the London market is unique and more robust than the rest of the country in terms of property holding it's value.

Yes, I am aware of quidco .... have done a few bits on there, but have got lazy recently I'm afraid

Thanks again

Moneygoes2money

Hi NC

So you've got in the region of 27% equity depending on property values since November 2007, which does give you a bit of leeway should property prices fall. Obviously, you want to avoid negative equity and a repayment mortgage (or part repayment mortgage) will help achieve this so always have in the back of your mind the intention to get whole mortgage on repayment as soon as you are able to and please don't let the mortgage lender talk you into remortgaging!

You shouldn't have to give a reason for switching to interest only but if they ask you could say it is to ensure you meet the monthly payments when due in the short term and your intention is to switch the whole mortgage to repayment in say 1-2 years' time or whatever timeframe you have in mind. I'm sure they will agree to it and there should be no charge.

Is the lender aware the property is being let? Did you buy the property with the intention of letting it out (i.e. buy-to-let) or was it your main residence, you moved elsewhere then decided to let it out?

Have you looked at switching your gas & electricity and buildings and contents insurance this year?

I've recently switched gas & elec from Ebico (Southern Electric) to E.ON (formerly Powergen) via quidco and saved £96 per year plus I got £70 cashback from quidco and I get 1 Tesco clubcard point for every £1 spent on gas & elec, which equates to £6 per year or £24 if converted to Tesco 4 x deals so that's £190 altogether.

I switched contents insurance to AIG Direct, annual premium about £115, but got £90 cashback so it's cost me only £25 for the year. Worth having a look if you haven't already.