AIBU To add £10,000 loan onto mortgage

[ChipsCheeseAndBeans]

Thinking about adding a loan onto our mortgage. Current mortgage is £450 a month with 27 years to go. Loan repayments are £395 a month with two years to go. Fixed term on mortgage coming to an end next month. If I get a new fixed deal for two years payments will be £300 a month. If I add loan amount to mortgage payments will be £335 a month.

I know that I will end up paying a lot more in the long run by adding the loan to mortgage - 27 years rather than 2 but that extra almost £400 a month would be really handy at the moment as we are trying for baby no 2.

Errr not when you are paying 27 years to pay it off with compound interest!! Insane (and just plain wrong) advice - the total cost of paying off a loan over 27 years at 2% is going to be much more than taking 2 years to pay it off at 10% If you can't understand that, you shouldn't have access to any credit

Cheers for the advice yeah, sparechange but as I said, it would put the loan onto a lower interest rate so that it could be cleared even quicker. I did the same to my loan and it will be cleared this year with overpayments. I will pay less in total than I would have had I carried on with repayments at 7%
In fact, the advice is to get loans onto a lower interest rate if possible, so no, I would not hesitate about doing this. She is currently paying 450, so this will enable her to pay her loan more flexibly and actually paying less in total.

Small children are expensive. We did similar, when I was pregnant with DD2 we increased the mortgage to spend some money on the house, paid the lowest we could for a few years when the kids were small then when that fixed term mortgage ended and our childcare costs went down we massively upped the amount we paid each month.

Some people are funny about mortgages and don't realise it's not like other debt because once you've paid it off the house still has value and you've got somewhere to live rent free. It's an investment not like a loan for a car.

Only you know how much financial flexibility you have now and are likely to have in the future. Don't overstretch yourself but don't sweat about making a small increase in your mortgage if you afford to shorten the length of the loan which it sounds like you can (if you want a fixed rate period you're unlikely to get to make overpayments).

If you remortgage and overpay as much of what you are currently paying as you can manage, would you then be able to take a payment holiday later on for instance during maternity leave? That could be even more useful than extra now?

100% I would, makes perfect sense

Some people are being a bit over the top about the compound interest. You will pay an extra £1860 in interest over 27yrs if you go for the remortgage. You will reduce that if you overpay. I could live with that to be more comfortable in the short term tbh.

My first thought was hell no.
But actually, 395 over 24 months is 9480.
35 over 27 years is 11340. IF you can obtain a similar interest rate in 2 years time.
Remortgaging will take 150 off your repayments anyway, so you are already better off. I'd remortgage without the loan incorporated, bank the 150 if you have no savings, use it to overpay the mortgage if you have savings. You can change the overpayment when you start maternity leave.

There are 2 types of people in the world - those who understand compound interest, and those who pay it...

As the responses on this thread demonstrate perfectly .

Bad idea Op, if you can avoid it then avoid it.

CountFosco "Small children are expensive." I agree with that but I would also say older children are more expensive.

When little my kids were dressed by NCT and got many presents second hand. Now at 6 and 12 they cost more, uniform, shoes, bikes, activities, food, it is all much more than when they were little.

Good grief, no wonder the finances of the average family are so fucked and everyone is drowning in debt

I'm speechless at the financial stupidity recklessness in some of these replies

Op, as someone pointed out upthread, do you understand the difference between secured and unsecured debt?

Don't get a bigger mortgage for nothing! There is nothing bar an extension or a move that would have me add a penny to ours, something with a tangible return.

Interest rates are at an all time low, don't base your repayment cost on this rate, and assume you can predict what will happen over 27 years. Compound interest does not work like that.

Seriously, secured debt is a big thing. I would clear that loan, remortgage/change deals where possible and any reduction in mortgage payments add on top to overpay. Then when your loan is gone, you can overpay even more. We only overpay by around £80 P/m at the moment, which isn't a lot but is around 10% of the monthly payment and is making a small difference.

What was the loan for? Does it represent excessive spending or something specific like a kitchen?

just need to forget how nice an extra £400 a month will be until two years time.

On the contrary, focus on how nice it will be and tick off the mere 24 months until it's yours! Then enjoy the next 25 years not owing or paying it.

The people I know who have done this seem to think they have no debt bar the mortgage and borrow again.

For the sake of two years you may as well clear.

I wouldn't consider increasing a mortgage at all at the moment. I feel things are too uncertain, what with Brexit etc.

If inflation increases or sterling collapses, increased interest rates could well be on the cards. Being an old fart, I can remember the devastating impact that had on people last time it happened, and all the misery that resulted. If that was to happen again, it would be much worse because of the shortage of housing being so much worse now.

Would it be so awful to wait another year before ttc, so that by the time the new baby arrives, the loan is almost paid off?

Interest rates won't stay this low for ever. I remember when interest rates shot up to 15%, in the early 80's. I can recall opening the letter telling of the increase. I was in the kitchen and felt physically sick.

When little my kids were dressed by NCT and got many presents second hand. Now at 6 and 12 they cost more, uniform, shoes, bikes, activities, food, it is all much more than when they were little.

Nothing is as expensive as taking maternity leave, that wiped a big chunk off our savings (covering my loss of salary) and we weren't saving at all during that time. The money we spend on the kids now comes out of our income and we save regularly.

If you are thinking of TTC I wouldn't get a 2 year deal. 2019 is also when we leave the EU. It could be more difficult to remortgage at that time and who knows what the interest rates might be. I'd be looking at a 5yr fix.

Depending on what your deal is, if your mortgage payments become lower, can you add the difference into your loan payments and get rid of that quicker?

It's a really bad idea I think. You don't have that much equity anyway so you are putting yourself at more risk of ending up negative equity in the future.