Borrowing more on mortgage

[BYTEr]

Hi all,

Just looking for any advice or any cons of borrowing more on your mortgage.

Me and my wife bought our first house October last year and a month ago we got our first annual mortgage statement through the post which also included a booklet which had information regarding borrowing extra on your mortgage which at the time I didn't take any notice.

However, I've just decided to look more into it, and on first glance it seems it can be quite good, especially compared to an ordinary loan due to our mortgage interest rate being much lower than anything I'd get through a normal loan, and because the pay back period is much longer, the monthly payments are much reduced when compared to a normal loan.

For example, we currently pay £528 a month on our mortgage, and it seems borrowing an extra £10k seems to only increase this by £35 a month.

The reason I've started to look into this, is because me and my wife have racked up multiple loans, credit cards, finance packages etc since we graduated in 2015 (wedding/honeymoon, cars, furniture etc) to which takes up a significant proportion of our monthly salaries meaning we are often down to our last few pennies a month meaning saving anything is near impossible (we only have £500 savings), which also means if we were to have any significant unusual expense, we'd need to use a credit card again, so borrowing extra could be used to pay a big chunk of this off.

Secondly, we'd also like to buy the freehold of our property after the second year which will roughly cost £4k.

Now, I haven't checked whether we'd actually be accepted to borrow more, especially since it's only been a year since we purchased, only paid of roughly £3k of the mortgage and have no idea how much our property is now worth, although new properties of the same type have been built nearby since and sold for £19k more than we purchased ours for.

Halifax state we can borrow more after 6 months up to 85% of the value of your property, including your existing mortgage and additional borrowing, which, considering we only paid a 5% deposit with a 20% HTB loan, doesn't sound like we'd be close in being able to borrow the minimum of £10k with this resulting in less than borrowing 85% of the value of the property.

Regardless of that, I'm interested to hear peoples opinion on borrowing extra on your mortgage compared to normal loans for the purpose of paying of debts.

Thanks in advance.

 

[krooton]

Is this just remortgaging, something people have been doing for decades when the value of their property soars?

 

[VincentHanna]

For your existing debt, wouldn't a balance transfer be better on an interest free credit card over 3 years?

 

[wedrum]

borrow as much as you can and still it on black

 

[Semple]

I never like the thought of borrowing more to repay off debts, i assume you've at least already gone down the route of consolidating your debts to an account with the lowest interest possible.

Where are you sat on the LTV boundary? You might find that borrowing more leaves you at a higher LTV and would mean your monthly mortgage payments go up. Whereas if you're close to falling into the next LTV bracket, your monthly payments might be less, and the leftovers of that could be used to pay towards that debt.

Have you also both done a lifestyle check, i.e. cancelling unnecessary/luxury expenses?

You'd have to run some numbers to see if it's beneficial.

Edit: how much debt are we talking about here?

Also i believe if you are to effectively re-mortgage, i think you have to pay the banks valuation costs again, and those can be fairly expensive, which obviously nulls out potential gains.

 

[The_Abyss]

As with all borrowing, it needs to be responsible i.e. for the right reasons and you need to be capable of repaying the debt and interest. Given what you've said about how you've managed so far, down to pennies each month after your existing arrangements, you need to think long and hard about your spending behaviour after however you resolve this situation to ensure you don't repeat the same behaviour and end up with problems without options to solve them.

 

[Buffman]

Is this just remortgaging, something people have been doing for decades when the value of their property soars?

Yea.

I did this on my house. You. Might struggle if you only own 5% of the equity though (i.e. The minimum for a mortgage ). Unless the value has increasef?

Generally the mortgage rate will be cheaper than a typical loan (mines 1.65%), but depends on LTV and new rates.

 

[glenimp617]

You should never remortgage your house to pay off debt racked up on indulgent purchases.

Home improvements (conservatory, building extension, double garage, garage conversion etc etc) which adds value to the property is fine.

Just take the pain now and clear the debts.

What happens is that you pay off your debts with a remortgage, and then in five years time find yourself in a similar situation just with a bigger mortgage.

 

[touch]

For your existing debt, wouldn't a balance transfer be better on an interest free credit card over 3 years?

I agree with this.

If you're struggling to pay, swapping unsecured debt for secured debt is possibly not a good idea.

 

[BYTEr]

Hi all,

Thanks for the replies.

Our debts are manageable, however, it just doesn’t leave us with much for anything else, we don’t live a luxurious life either (can’t afford too), we shop at Lidl, eat out once a month and we’ve been on one holiday this year to Cornwall for 3 days which cost £100 for a static caravan.

We’ve balanced transferred as much of our credit card debts as possible (£6.5k), but still have £1.5k on an 18.9% credit card where we struggle to pay much more than the minimum at the moment.

Our main debt outgoings are from our wedding/honeymoon loan, car loans and then finance deals we took out (some are 0%) when we purchased our home, flooring, furniture etc.

Essentially, we’re in this position because we were not expecting to buy a house so soon, but my wife received a £7k payout and we thought this might be our only opportunity to buy any time soon, purchasing the house cost £12.5k, £5.5k more than the payout (£10k deposit, £2.5k solicitor and stamp duty) along with all the extras we needed which we didn’t have like a fridge, bed, wardrobes, sofas etc, also had to buy flooring and the £1.5k stamp duty was annoying considering less than a month later it was scrapped for first time buyers!

So we were very aware at the time that in the short term we’d have little left, but hopefully in the long term we’d be better off, however I wasn’t really aware of borrowing extra, so it seemed quite good that I could pay some debts, reduce our monthly outgoings for a small increase in mortgage costs and why I made this thread.

 

[Haggisman]

If you're disciplined and pay back the same amount as you currently are, then it can* work out cheaper. If however you pay back the minimum every month and spread it over the whole term (e.g. 25 years), it will cost significantly more!

* however you also have to take into account that it will increase your LTV meaning you may get worse rates on the mortgage, so could potentially cost you even more!!

Also, obviously your home is at risk if you default etc.

 

[R.C.Anderson]

I've not done it myself, but my opinion would be it depends largely on ow much self control you have.

I'd do some calculations & work out how much it'll cost you to repay both ways & decide from there which is better, but this is only if you know you have the self control to not do the same again (as if not, you'll just get worse & worse until you don't have a house at all).

Have you tried calling the bank you've got your 18.9% card with, and seeing what they can do? I've read a lot of the time the banks are able to offer deals, from a blanket reduction of interest rate, to a number of months interest free (or both) to help you repay. I assume the cards you've transferred are to 0%? If so, you're best paying as much off on the 18.5% as you can (which it sounds like you are) before trying to overpay the 0% cards.

I wouldn't be surprised, however if your additional mortgage funds are rejected because of your other dept, however.

 

[fez]

I assume you have done the sums on this but the only way this really makes sense is if you pay off all your loans with the remortgage and then use all of the money you were piling into those loans to overpay your mortgage. That way you should in theory be far better off than you were before.

Even on a relatively small mortgage with a low interest rate of about 2%, over 30 years you pay a **** load of interest. For example, on a £200k mortgage at 2% over 30 years you will pay ~£66k in interest.

 

[Buffman]

The 18.9% debt should be the priority to be removed, your mortgage APR will be less than this. Obviously pay it back as quick as possible.

You will need to phone your lender and see if they can do it, and consider exit fees and remortgage fees if with a new lender.

As ita only 1.5k "bad debt" can you not repay it ASAP?

Also, I think you can retroactively recover the stamp duty if the reason you didn't receive it was it being over the cap? (announced in latest budget last week )

 

[VincentHanna]

If you only bought the house within the last year and already want to remortgage, won't you have a large 2-3 year redemption penalty?

I'll be surprised if anyone would offer you another mortgage after just one year, as it might ring alarm bells.

 

[BYTEr]

As ita only 1.5k "bad debt" can you not repay it ASAP?

Unfortuantely not, we roughly have about £150 left at the end of the month after all expected expenses, however, something always needs more money, be it cars, cloths/shoes, the dentist, or b/day or xmas presents etc.

Also, I think you can retroactively recover the stamp duty if the reason you didn't receive it was it being over the cap? (announced in latest budget last week )

Don't think so, the house was £200,000 and we were first time buyers, less than a month later and we wouldn't of paid anything, bit a joke really.

 

[taB]

Unless you absolutely have to I wouldn't think this is a great idea. You'll be turning unsecured debt into debt secured against your home. Cut back on the presents, shoes, etc. for a while.

 

[The_Abyss]

It is straying off topic, but with £150 remaining after debts and expected expenses, but then an admission that there are always unexpected expenses, I would argue that your debts are not affordable at all. You're extremely vulnerable to a financial shock, such as a prolonged loss or reduction of income. I sincerely hope that some of those outgoings insure you against those kinds of events.

 

[VincentHanna]

If you don't have money for Christmas presents, don't buy Christmas presents

Not really a difficult concept.

 

[DarkHorizon472]

As above the problem you have is you are very exposed financially to shocks. The key thing is to pay off the most expensive debt and also look to increase your income in some way, even a second job at weekends if possible just to clear down debts / allow you to increase your savings. Check your mortgage agreement as you may be able to take payment holidays which could help you but be careful of the terms / cost of doing this and it is not a long term fix but it could help get rid of the 18.9% interest debt.

The key thing is to get your finances on a more stable footing.