Add credit card debt to mortgage?

natc · 19 July 2019 at 12:43AM

Hi

We are in the process of moving house. We have £15k on credit cards and constantly in our od's in 3 accounts! It's horrible. Just can't seem to get out.The house we are buying will allow us to have £25k equity which we were going to use to upgrade the house, decorate etc, which will increase the value (Hopefully!), but then we have this debt which we thought we might just pay that off instead, get our finances in order, then save to do the house up. However, I've seen on this forum that most people are saying putting debt onto mortgage is a bad idea. Can someone help me with this?

The mortgage we are getting is 90% ltv, which gives us more equity, if we went 85% ltv, we would only save about £100 a month and just wouldn't be able to see the light at the end of the tunnel. Although we would have paid more off the mortgage this way.

We have reduced spending where possible on our utilities and we have just done a budget which we will stick to every month. We have a car which costs us about £500 a month to run, guzzles fuel so we are selling that and won't be getting another vehicle on finance, may go without until we can pay for a cheap car outright.

Just really want some advice on what the best thing to do would be with debt on a mortgage, or do a lower ltv, reduce outgoings drastically and pay the debt off separate?

Many TIA!

zagubov · 19 July 2019 at 1:08AM

You can clear your debt that way but it will take 25 years and you will pay a lot more in the long run.

It's not cost-effective.

mortgageFTB · 19 July 2019 at 6:04AM

Additionally, you’re not addressing the root problem. It’s highly likely you’ll end up with XK of credit card debt again.

While more painful in the short term, I believe the best way to address this is to budget, address your spending and pay off the cc without resorting to a consolidation loan or adding to your mortgage.

This way, it’ll ultimately disappear faster, cost less than adding to a mortgage and you may address the reason/behaviour that got you to this.

Best!

WhenIam64 · 19 July 2019 at 6:40AM

You can clear your debt that way but it will take 25 years and you will pay a lot more in the long run.

It always irks when new homes are sold with all the kitchen white goods included. Very expensive way to buy a cooker and fridge. Makes Brighthouse seem cheap.

enthusiasticsaver · 19 July 2019 at 8:04AM

The best thing to do would be to go for lowest LTV. I am a bit surprised that you are moving at all though when you are already struggling with debt. Getting rid of the car will help but you need to seriously address your overspending before you move especially if the new mortgage is bigger. Have you already got a mortgage offer? If you have presumably the lender took your existing debt into account and lent you less as a result?

Equity is not actual money so don't fall into the trap of thinking you can spend that on the house. Spending should be linked to income not house equity as that can very quickly disappear as the property market rises and falls. That is how people end up trapped on expensive mortgages because they don't have enough equity to move. Also decorating does not increase a house's value as that is just considered as maintenance. Adding an extension will usually increase its value and sometimes a new kitchen or bathroom but not as much as you think and often not enough to cover the cost so spending a lot on a new house when you are on a tight budget is not a good idea. I would concentrate on getting rid of the debt before upgrading the house.

In case it is not clear I am recommending you do not put credit card debt on your mortgage. It will be a lot more expensive as over a longer period, it will be attracting interest whereas you should be trying to get it on 0% and more importantly it tempts you into thinking you don't have a debt problem when you do. Sort out your budget, make sure it is on 0% and start repaying it. Same goes for overdrafts.

natc · 19 July 2019 at 11:40AM

Thanks everyone. Much appreciated.

One of our cards is on 0% and the other two aren't. I didn't want to apply for another credit card to get a 0% deal as we are in the process of application for the mortgage and I didn't want to hinder that but I could do that once app has gone through.

We are self employed and the rates for mortgage is quite high. Long story short, my husband was sole trader, I was employed by him for 5 years, we went Ltd, both 50/50 18 months ago, so can only get mortgage with specialist lenders who will accept 1 years accounts, as high street banks generally don't accept less than 2 or 3 years.

The I interest rate difference between 90 and 85% is minimal. So we thought would be better to get 90 so can use the equity to pay debt. That was the idea!

We decided to move a couple years ago, things need doing in the house. We never fiind the right time to move, and now or next year isny going to make much difference
I don't think. We aren't Interested In the house anymore, we both hate it, and the area. The new house is in a nice area, where our son can play with friends it's a small cul de sac. Also, there is a new estate being built close to current house and husband worried it will drive our house price down if we wait.

natc · 19 July 2019 at 11:42AM

We have also just come out of our 2 year fixed mortgage term so thought it was a good time, rather than fix again for another 2 years if we want to move on that time, we will have to pay a fee to get out of mortgage.

D_M_E · 19 July 2019 at 12:03PM

Another vote for not sticking debts on the mortgage.

Once the car is gone, you'll have an extra £500 a month to use.

If you keep to your budget and put all of this to your debts they will soon be gone.

More on the debts means less interest every month which means the debt goes down a lot quicker and once it's gone you can overpay on the mortgage and get that down.

Don't forget to have a short break every couple of months or so - nothing extravagant, just a little treat on your debt free journey.

enthusiasticsaver · 19 July 2019 at 12:13PM

natc wrote: »

Thanks everyone. Much appreciated.

One of our cards is on 0% and the other two aren't. I didn't want to apply for another credit card to get a 0% deal as we are in the process of application for the mortgage and I didn't want to hinder that but I could do that once app has gone through.

We are self employed and the rates for mortgage is quite high. Long story short, my husband was sole trader, I was employed by him for 5 years, we went Ltd, both 50/50 18 months ago, so can only get mortgage with specialist lenders who will accept 1 years accounts, as high street banks generally don't accept less than 2 or 3 years.

The I interest rate difference between 90 and 85% is minimal. So we thought would be better to get 90 so can use the equity to pay debt. That was the idea!

We decided to move a couple years ago, things need doing in the house. We never fiind the right time to move, and now or next year isny going to make much difference
I don't think. We aren't Interested In the house anymore, we both hate it, and the area. The new house is in a nice area, where our son can play with friends it's a small cul de sac. Also, there is a new estate being built close to current house and husband worried it will drive our house price down if we wait.

Why would you move 0% debt then to the same rate as your mortgage especially if it is high? That will cost you so much more overall. How much bigger will your mortgage payment be and what rate have you been given initially? How do you intend paying the fees etc for moving? I think I would be concerned that on presumably a lower mortgage payment you have still been struggling and that will get worse after you move. Ideally you should have got rid of the car before now to use that £500 to pay down some debt.

It is not the interest rate differential between 85% and 90% that is the issue it is the amount and term of the mortgage and affordability on your income. Obviously the higher the mortgage (so £15k more if you add debt) is the higher the monthly repayment. The higher the interest rate the more you will pay over all and the killer is the long term normally of a mortgage will mean the cost of the debt overall to repay. If you tell us the interest rate you have been offered and the term of the mortgage we can work that out. The stark figures may persuade you that consolidating the debt on to your mortgage is not a good idea let alone the risk of losing your home if you cannot meet repayments. That alone is the best reason for keeping mortgages as low as possible especially if you are SE or have erratic income.

Whilst overall I understand your reasons for moving because you are not happy in the area, worried about house prices etc making big decisions like moving without considering financial implications would make things worse for you. Obviously getting rid of the car will help though so you need to weigh that up.

natc · 19 July 2019 at 12:44PM

D_M_E wrote: »

Another vote for not sticking debts on the mortgage.

Once the car is gone, you'll have an extra £500 a month to use.

If you keep to your budget and put all of this to your debts they will soon be gone.

More on the debts means less interest every month which means the debt goes down a lot quicker and once it's gone you can overpay on the mortgage and get that down.

Don't forget to have a short break every couple of months or so - nothing extravagant, just a little treat on your debt free journey.

Thank you. This makes sense. Just feel bit overwhelmed and can't think clearly!

natc · 19 July 2019 at 12:51PM

enthusiasticsaver wrote: »

Why would you move 0% debt then to the same rate as your mortgage especially if it is high? That will cost you so much more overall. How much bigger will your mortgage payment be and what rate have you been given initially? How do you intend paying the fees etc for moving? I think I would be concerned that on presumably a lower mortgage payment you have still been struggling and that will get worse after you move. Ideally you should have got rid of the car before now to use that £500 to pay down some debt.

It is not the interest rate differential between 85% and 90% that is the issue it is the amount and term of the mortgage and affordability on your income. Obviously the higher the mortgage (so £15k more if you add debt) is the higher the monthly repayment. The higher the interest rate the more you will pay over all and the killer is the long term normally of a mortgage will mean the cost of the debt overall to repay. If you tell us the interest rate you have been offered and the term of the mortgage we can work that out. The stark figures may persuade you that consolidating the debt on to your mortgage is not a good idea let alone the risk of losing your home if you cannot meet repayments. That alone is the best reason for keeping mortgages as low as possible especially if you are SE or have erratic income.

Whilst overall I understand your reasons for moving because you are not happy in the area, worried about house prices etc making big decisions like moving without considering financial implications would make things worse for you. Obviously getting rid of the car will help though so you need to weigh that up.

I wouldn't move our 0% card to mortgage. Just the ones with interest. But having heard what you guys have said, would make sense to get a lower off, it would only work out at about £70 a month less I think. But would feel better that a bigger chunk has been paid off mortgage. We could knock off as much as we can off the interest cards and pay minimum on the 0% until the others have been paid off?
Our plan is to get rid of debt asap, then start working off reducing mortgage term every couple years.

The interest of the mortgage is 3.77% for 90% Ltv and 3.6% for 85% Ltv. We wanted 166500 On the 90% or 157250 On the 85%. Our outstanding cc on the interest cards is about 9k. 6k on the 0%

Add credit card debt to mortgage?

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