Remortgage to pay debt

Clownfish68 · 16 April 2019 at 1:19PM

Hi everyone,

Long time lurker first time poster here. So as the title suggests remortgage to pay debt yes or no? Initially on the advice of my mortgage broker my immediate reaction was why would I waste equity in my house and told him that would not be an option.

Anyway I have 2 credit cards with a total of about £5k on each worth of debt. Which I pay £100pm. My 0% interest has recently ended on these cards. I also have a £13k personal loan which I needed to purchase a car last year at 8.9%APR so it works out to about £232pm.

My finance and I are looking to sell our house and buy my brothers which doesn't really need much work. We are thinking use £5k to cover fees and take out £5k to do the improvements. We are currently living in a fixer upper and we are sick of saving and pumping money into the house and dealing with builders every few months so we will be taking some equity to fund the improvements to do in one go rather than taking 5 years as has been the case in my current home.

We put the house on the market last week and we are fortunate that we have 4 offers for full asking price at £170k with a few more pending offers. Obviously we might have scope for a bit more cash depending on how everything goes (touch wood). The house we are buying is £218K and we might be borrowing around £177k.

Now we honestly didn't expect this and all my mortgage research has been based very conservatively at needing at least £155k from the sale of our home. Should I consolidate my car loan and one of the credit cards into the mortgage. I know this is not ideal but I work in a very volatile industry (housing) and I am mindful of how the market might respond following Brexit.

We are planning to start a family soon so ideally the extra £300 a month would be great but I would also be planning to do additional monthly payments to the mortgage. I should also note that I am in the process of a personal injury case after a road traffic accident and the person responsible has accepted liability. This has left me with a lot of issues so I think I will be getting a rather large sum eventually which I plan to plug back into the mortgage.

Any advice would be appreciated.

Niv · 16 April 2019 at 2:08PM

It sounds like a good idea on the face of it, but in reality I think its barmy. You will be making unsecured debt into secured debt and therefore risk your home if you do not pay the repayments.

I thin k it would be better to overpay the most expensive debt as much as you can or see if you can find another 0% credit card offer.

MEM62 · 16 April 2019 at 2:36PM

It would be interesting to know what qualifications your mortgage broker holds in in debt management. Naff-all I would expect.

The wisdom is that turning unsecured debt into secured debt is far from the most prudent financial decision that you will ever make. It also makes the debt far more expensive as, although the interest rate is lower, the term is much longer.

Instead of planning to overpay the mortgage, why not keep the unsecured borrowing unsecured and overpay that. In particular work on the credit card and then, when clear, start putting some away for when you car needs replacing. You will have some idea how long it will last and what it might be worth when you change it so you can target your savings to have sufficient money available at the time the car needs to changed. (Basic finance) If you are working in a volatile industry then you do not want £13k car loans round your neck - particularly when you have a young family.

I know it is tempting to just stick the debt on your mortgage. After all, that is the easy way out but in the long term it will not serve you well.

System · 16 April 2019 at 3:02PM

If you want to turn £23k of debt into £50k in repayments just add them to a 25 year mortgage.

Nebulous2 · 16 April 2019 at 6:08PM

When I was very young an acquaintance remortgaged, did up his house and bought a new car (Sierra xr4x4) I was quite amazed at this until my neighbour pointed out he had effectively agreed to pay his car and carpets over 25 years. They would be long gone and he'd still be paying for them.

Socajam · 16 April 2019 at 6:13PM

Nebulous2 wrote: »

When I was very young an acquaintance remortgaged, did up his house and bought a new car (Sierra xr4x4) I was quite amazed at this until my neighbour pointed out he had effectively agreed to pay his car and carpets over 25 years. They would be long gone and he'd still be paying for them.

This is so true and a lot of people do not realize the implications of this.

For the OP, why not use the money from the accident to clear the CC debt without adding any extra to the mortgage?

Sncjw · 16 April 2019 at 6:16PM

You do realise that the bank will take off your debt amount of the original mortgage amount to give you an amour they can loan you. They take current debt into considerstio. So even with consolidation loan it would double your debt

Sncjw · 16 April 2019 at 6:17PM

I’m saying they will take 23k off the amount they are willing to loan you money for the mortgage.

phillw · 20 April 2019 at 11:43AM

Nebulous2 wrote: »

They would be long gone and he'd still be paying for them.

I would happily pay for something after it's long gone, it would entirely depend on the interest rate I was paying. I assume from the xr4x4 it was probably not the cheapest of mortgages & I thought ford were doing quite cheap leasing back then & so it was probably not the right move.

If someone lends me a lambourghini for a year for £500 then I'll gladly pay them back at £1 a month over the next 41 years.

Socajam wrote: »

This is so true and a lot of people do not realize the implications of this.

Some people like brand new shiny cars, they don't realise just how much they will have lost in value after the first year or two. If you always buy second hand then you save so much money.

jonesMUFCforever · 20 April 2019 at 12:42PM

Mortgage regs have been tightened a lot these days - debt consolidation may be allowed but not necessarily for the term of the mortgage.
Obviously if the OP is going to sell up he may get what he wants short term but there is no magic wand - overspending = debt - there is no way not to get into debt unless you earn more than you spend.

tonycottee · 20 April 2019 at 3:30PM

If you're willing and strong-willed enough to make overpayments to your mortgage every month, then it's a great idea. If not, I wouldn't do it.

Remember, your mortgage broker earns more if you borrow more. His/her suggestion will probably be self-motivated.

Remortgage to pay debt

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