Consolidation or Remortgage?

[Minnie]

I will try to keep this brief!

Hubby's debts - £43k
My debts - £35k
My property - £210k
My mortgage - £64k

I currently pay £900.00 per month in debt repayment. Hubby is just starting out on the IVA process.

Initially I was advised to consolidate my debts to reduce the payments to realise enough 'surplus' income to support hubby's IVA. Despite my reservations at doing this I approached several companies and am presently going through an application with Ocean Finance that reduces my £900.00 per month to £465.00 per month.

Following a meeting with hubby's IP last week they find it hard to understand why I would go down a consolidation route and strongly suggest I consider a remortgage. The remortgage to include:

£64k - existing mortgage
£35k - my debts
£7k - new car desperately needed (car failed MOT; needed for work and to pick hubby's son up at weekends)
£18k - full and final settlement proposal for hubby's IVA

This would give me a £124k mortgage, which I would have to take out over at least 18 years, if not more.

I appreciate that mortgage borrowing is one of the cheapest forms of borrowing, however, I feel I am being encouraged to spread the problem out over a longer period of time when in actual fact if hubby and I can make the figures work, which I strongly believe we can, his IVA would be finished in 5 years at which point he would be completely debt free; my consolidation loan would be finished in 10 years and I would just be left with 8 years to run on my existing mortgage.

I know the biggest problem either way is not going back to re-using credit cards again, which I acknowledge may be hard, especially if under the IVA budget things get tight but I think the pressure we have been under over this and the seriousness of the situation will force us to be more careful than we have ever been.

I would be interested to hear other forum views ...

REMORTGAGE -v- DEBT CONSOLIDATION AND IVA

[kpw]

i presume that you have a joint mortgage With that amont of equity there is probably going to be an equity release requirement in your husbands iva proposal so I would advise against an iva on those grounds for him any way. If you can show that your MDI (monthly disposable income) between you,not taking account of your unsecured creditor payments and a strict budget plan, leaves you short of covering these payments in full, then looking at a good debt management plan initially may be the best option. Once you have run this for a while, and if you do have funds available at a future date e.g. remortgage it is possible to negotiate full and final settle ments with creditors, and there are companies that can help you do this.You would have to raise significantly less then to clear the debt than putting it all onto an expensive long term mortgage arrangement. Especially if your circumstances change and/or interest rates go up in the future. you could be extending mortgage payments for another 10-15 years. creditors can apply for a charge on your property if you ever did sell or remortgage. Reconsolidation loans will only put you more in debt(due to interest) and you may end up going back to the credit cards bearing in mind you will still have them and their credit limits. To look for a permanent solution to your problem you need to consider your circumstances together.

[Minnie]

Thank you kpw.

The mortgage is in my sole name, as is the property. I purchased the property from the proceeds of the breakdown of my first marriage. Hubby has never contributed towards the financial costs/upkeep of the property. I have funded all home improvements e.g. windows, kitchen, conservatory etc., some through inheritance after my beloved mum died.

Whether I consolidate or remortgage I am going to run the risk of interest rate rises. The consolidation loan is secured against the property as would any remortgage.

I am just reluctant to commit to such a hefty mortgage over a long period of time.

[kpw]

you are right commiting to a mortgage for a longer period of time is spreadind the debt over a longer time period.As i said a lot depends on your joint circumstances re priority expenditure v income and having enough disposable income to fund whichever solution you go for. the main thing would be making sure that you are not in a position again where you need to take out more credit. i.e destroy credit cards and budget carefully.If the expense of the consolidation loan is going to put you back to square one and you have to start using credit again then you wont be out of debt in any amount of time.clearing your husbands iva(i presume the payments are in the region of £350)would give you more disposable income but it really depends on your joint overall circumstances and making sure that whichever one you go for the priotity is that it is affordable and doesnt rely on taking out any more credit.

[Minnie]

You are right kpw in that the IVA payments will be about £350 per month. When you take into account the extra mortgage payment per month to fund what would be a huge mortgage to have things in smaller pockets seems far more attractive especially as some would be paid off a lot sooner than a long term mortgage.

I agree regard the discipline re credit cards. If hubby's IVA is accepted this is likely to be our one chance of putting things right so willpower and determination will be needed.

[kpw]

does the ocean finance quote include f+f to creditors re husbands iva. It doesnt sound like it does .If not that + mortgage +iva payment sounds a lot to maintain unless you have a very high income or it is likely to increase. If this is the case and I know you are wary of remortgage, but it may be worth revisiting IP's advice and put it altogether. you could then end up being able to save and/or if you wanted to reduce mortgage more quickly, increase mortgage payments, and do it that way.Particularly if IP thought that creditors would accept a lump sum proposal for husbands iva, then that would not be an ongoing expense. What you do not want to happen is struggle and start borrowing again particularly if unexpected expenses crop up e.g.car. Also as a rule I would steer clear of expensive consolidation loans with ocean finance

[Minnie]

Thank you kpw.

In the interim the mortgage + consolidation + IVA does work out more expensive, however, in 5 years this is reduced by £350.00 per month thereby rendering the consolidation + IVA considerably less than an overall remortgage that I would be stuck with for another 13 years +.

Points taken re unexpected expense and re-using credit!

Still looking at all the options though!

[WhenInAHole]

Why not consider a Flexible Remortgage which gives you the best of both worlds and some flexibility in the future? With a flexible mortgage you can "overpay" each month which lets you pay off your debts faster BUT if you need the cash in the future you can draw it back down without much of a penalty and at mortgage rates. Of course needs some discipline to use properly

I also had a quote from Ocean and the rates were sky high...something like 13% and re-mortgages of 6.4% were available...

If you do need secured lending a remortgage might be the better deal. You can always remortgage again in a few years if it doesn't suit as well...The secured loan looked to have fees and penalties all over it...

[Minnie]

Thank you WhenInAHole

The rate I have been quoted is 10.6% with fees included in the monthly repayment.

I am still very reluctant to commit to a huge mortgage over such a long period of time but do take on board the comments you have made.

[mikebdomain]

Obviously you need to seriously consider the merits of turning unsecured borrowing into secured borrowing and the danger of losing your home should you find yourself in financial difficulty again at a later date.

You have a large amount of equity in your property, with such a low Loan To Value (LTV) and as long as you do not have any defaults, you may be able to get a flexible remortgage. However, you need to speak to a mortgage broker/advisor to see what products are available to you. Eligibility for all products including flexible re-mortgages will depend on your personal circumstances. You may find a product with a lower enough rate to make re-mortgaging a consideration.

Taking out a larger mortgage with a view to clear unsecured debt is rarely a good idea, especially when you have so little time left on your existing mortgage. That said, it is still a good idea to have a chat with a mortgage broker and find out what products may be available to you, so as you may at least, make an informed decision.


FREE ADVICE IS THE BEST ADVICE

Mortgage Broker
Specialising in adverse credit.

[MelanieGiles]

Mike

Just picking up on your point about taking out a larger mortgage to clear unsecured debt being rarely a good idea - could you clarify that point please bearing in mind the higher interest rates payable on credit cards and loans rather than a mortgage?

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Adam Davies]

Hi
Melanie I would have thought that turning unsecured debt into secured debt can never be a good idea because you are effectively putting your home at risk.Sometimes though,I accept,that this is the only way to make your outgoings more manageable.
regards

Andy Davie
IVA.co.uk Spokesperson

About me:
http://www.iva.co.uk/andy_davie_profile.asp

IVA Helpline: 0800 197 4838
http://www.iva.co.uk/iva_helpline.asp

[mikebdomain]

Hi Melanie

It's mainly to do with the hidden costs and the dangers of securing debts against your home, where if you fail to keep up payments you may lose your home... FSA recommended wording 'Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or other loans secured upon it'...

Also turning unsecured debt such as credit cards and loans into long term secured debt may actually mean larger interest costs over the term. Hidden (or rather NOT obvious) charges also contribute to the total cost of credit whereas; the broker charge, solicitors costs, higher lending charge, valuation fees, lender arrangement fees etc. which maybe included in the total amount borrowed may in the outset mean short term savings (e.g. the monthly amount payable maybe less than you were paying) but, over the long term mean you are actually increasing your total indebtedness.

so to summarise.

Turning short term unsecured debt into long term secured debt;

- puts your home at risk should you fail to keep up repayments.
- may increase the amount you owe because of fees, interest and charges.


PS Thanks Andy LOL - Posted JUST before me

FREE ADVICE IS THE BEST ADVICE

Mortgage Broker
Specialising in adverse credit.

[MelanieGiles]

Andy

So far as I am concerned, from a cashflow benefit, mortgage rates are much lower than credit cards and loans and can therefore bring ease to a household's strained finances. And you put your house at risk in any case by borrowing unsecured money you can no longer afford to repay, given the increased use of charging orders I am currently seeing. If I had the benefit of a full and final settlement by way of equity release, rather than a five year crippling repayment plan, I am sure I would plump for the former.

In my book sensible consolidiation, using equity raised by way of a re-mortgage, can bring many advantages - you only have to look at your own situation to see that one! However, the key is not to continue to use the unsecured credit sources and become a habitual equity releaser!

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[MelanieGiles]

OK - I can see some of those points - but the home at risk issue is there whether the debts are secured or not. Mark my words there will be many a person in a DMP fighting a charging order they were not expecting before the year is out, and equity release is nigh unavoidable these days within an IVA.

I still feel that if people have the ability to offer full and final settlements, the advantages of this far outweigh the other issues - but there has to be a maximum cap on LTV borrowing to take account of interest rate rises and property prices falling.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk