If I need to pay off some of my debt would borrowing from my mortgage be a good idea?
The simple answer would be, quite likely. I have had many enquiries about personal loans vs borrowing on the mortgage.
+ve's are that the interest rate will probably be lower and the costs will, as a result, save you money.
-ve's will be the term will be likely to be longer and therefore you may pay more over the longer term and it will be a debt secured on your house. | 01.05.11 @ 20:41
If you have a surplus within a mortgage account - either from overpayments or within an offset arrangement, then I am sure that it may be better to pay off your debts. I am assuming here that the interest charged on your debts is higher than that on your mortgage.
The key question here is: will it destabilise your mortgage and housing plans? Whilst you will in almost all cases reduce your total monthly payments by consolidating it all in a mortgage loan, your payments will also extend over a much longer period.
Whether it is a good idea or not depends upon how you will act once you have taken the step of increasing your mortgage loan. If, for example, you make overpayments equal to the monthly sum saved, then it will be to your eventual benefit. The main danger will be that you increase your mortgage, then over a period of time run up your debts again. The would be a disastrous road to take, leading in extreme circumstances to the repossession of the property, as well as a bad credit rating - even bankruptcy.
Are you on a bit of a possible downward spiral with your finances? If so, instead of looking for financial tricks to defer your problems, see if you can produce a viable living budget. Contact me if you would like a (free) copy of my budget calculator (runs on Excel). | 01.05.11 @ 20:50
I agree with a lot of what David has said and would add that there is no rule that states you must take a top up on your mortgage over the same term that is left to expire.
most lenders will often have a 5 year minimum but if you sign up to say a 2 year fixed rate with an initial 5 year term you would usually still be able to pay off without penalty after the 2 years - the mortgage illustration will always have details of this.
The "danger" as David points out is consolidating a 5 year personal loan into a 25 year mortgage as although the underlying rate will no doubt be lower, paying it for more years will end up costing you more.
Another key "danger" is when you come to remortgage, your current or new lender may not have very attractive deals available if the % of loan to the house value has gone above a certain level, generally the best deals require at least a 25% deposit/equity and the rates can change dramatically with each loss of equity in 5% chunks with only 1 or 2 lenders willing to offer a remortgage at 90% and the rates are eye-watering compared to those at even 85% or 80%.
so do try and consider the full implications of your plan. If managed well, it can be very successful but it can be disastrous if not. | 01.05.11 @ 21:17