Adding to mortgage to pay off debts and free up capital??

signofthetimes

Havent posted before but have been an MSE covert for some months now - Martin should get a knighthood for materminding this website!!

I have used the website advice for reducing costs in a number of areas, mobile phone, broadband, car insurance which have been a help however if I could ask for advice on the following dilemma that me and the family are faced with.

Our Mortgage tie in with Woolwich (Barclays) is due to end 30th April when it would revert to SVR - we obviously need to do something, but what?
Current lender is offering tracker rate, 0.45% above the bank rate - therefore approx 5.84% based on existing rates. However position elsewhere is that due to another baby in the household and my wife finishing employment until it becomes practical for her to get back to work (other than a few hours in the evenings which is proving harder than expected to get!) then our outgoings are exceeding our income, which combined with credit card debts of £8,000 mean that we cant afford to do nothing!. (CC debts built up over a number of years, partly to do with paying for a second hand car using the cards and spending as much on them as paying off Im afraid!)

Have explored the option of adding to the mortgage (currently £72,000) and current lender has now offered tracker rate (ie, 0.45% above bank rate) for adding (on our suggestion) an additional £15k to the mortgage to take us up to £87,000 mortgage (house valued at £190K at present). Our mortgage has 13 years to run.
The additional amount added to the mortgage would increase our repayments each month by approx £140 a month - I am currently paying approx £260 a month in credit card payments (they are all 0% at present, and have never missed a payment but I am beginning to run out of new credit card companies to get cards from and the balance transfer fees arent helping!). So monthly outgoings would decrease by £120 in one go, however our outgoings per month are still exceeding our income by approx double that a month, so I realise that wont answer all our issues. I will of course continue to drive down costs in other areas, using the advice of the website etc!

The additional £15k proposed, would be used to pay off the credit card debts, plus buy a bigger (second hand or more) people carrier for the increased numbers in the family. Finally the last couple of thousand will go on finishing replacing the windows in the house in order to make the house more sellable in a couple of years when the children just get too big for existing house!

I am mindful of the many posts that I have viewed advising people not to add debts to the mortgage, however am tempted by the potential for adding to the mortgage, especially given the length of the remaining mortgage (13 years) the value of the property in relation to the mortgage and the need to address the monthly budget problems that we currently face. I feel that I can be disciplined to stop spending on the cards if they were paid off, but realise that most people start off thinking that way!!

Any advice greatfully received - are there possibly any other options that I should be exploring? Sorry if it seems like brain overload - but have reached a crossroads point!!

Thanks for reading!

spinko64

Hi

I have some options for you that you may wish to consider, however these are short term measures to reduce your monthly outgoings.

Firstly, you could extend your mortgage term.
Secondly, you could extend and raise capital
Thirdly, change your mortgage to an interest only mortgage
Fourthly, arrange with creditors a lower monthly payment.

None of the ideas above are an ideal solution but when needs must, the main priority now is not to increase your debt.

I hope this helps, if you require a better breakdown of costs I can help

lynnexxxo

Welcome
I think you really have to try and reduce your monthly outgoings.

Try having a look at the debt free wannabe board, they are great at helping do this.

On the surface, your plan doesn't look a bad one, you have a good deal of equity in the house. However I'd question using the money to buy a new car, you'll be paying for it still once the car has gone to car heaven. Do you really need a bigger car? how many children do you have?

Also, I think the windows could wait, they will cost more than the value you add to your home. think about it again in a couple of years maybe when you wife is back at work and your money situation has improved.

Lastly, please don't take any my advice as critcism, honestly its just advice but sometimes went stuff is written down it sounds more harsh than it was meant to.

signofthetimes

Thanks for the responses so far - much appreciated!!. I know the answer is not to increase the mortgage = debt, it just seems like the most straightforward option!
In response to spinko64 I don't on face value, like the sound of extending the life of the mortgage if at all possible, but it is an option that I hadnt really thought of seriously until your post - will that be relatively easy to arrange with my current lender, do you think?? The second option of extending and raising capital, again, whilst not an obvious route, could be the way to go - perhaps I can compare the payback/benefits by suggesting them both to my current lender?
Can I temporarily change over to an interest only mortgage for a short period (until a significant second wage comes into the household) or is that out of the question with most lenders? Finally with respect of credit cards, do I end up raising alarm bells if I contact these cresit card companies who may turn the screw even more if they know things are tight at the moment? Just dont want to open a can of worms!! You have given me plenty of food for thought though and I really appreciate your time and support.

In response to lynnexxo, we have 3 children and the current car is a squeeze as it is, and the kids just keep on getting bigger!! - I dont think we have much of a choice there. Good point about the windows, better to wait until the monetary outlook is more healthy as a family, and perhaps close to when we may need to move on - its those kids again!! (Only joking - they are priceless really!). And your comments were taken in the manner in which they were attended - good advice and thank you very much for your support!!

UK007BullDog

Have you looked at using 0% cards or very low life of balance credit cards?

Alternatively if your ages permit do a clean sweep and pay off the credit cards, get the newer larger car (note newer, not brand new) and any money for the windows (new windows might save money as saving on energy costs) and anything else that needs doing (not holiday or luxury items), by remortgaging and using the equity of the house, by increasing the term on a repayment basis to fit your budget.

Then you have to stick to your budget, get rid of all CC's, no further loans! Make sure you use the other money saving forums and try to live on a set realistic budget. Then start to save towards the future new car, holiday and the kids further education and any emergencies. Start a small minimal overpayment and when income increases add that to the overpayment for the mortgage.

Make sure you put it all on paper and discuss with the family to ensure everyone agrees to stick to the budget.

herbiesjp

Try using Martin's budget planner:

http://www.moneysavingexpert.com/banking/Budget-planning