Remortgaging with debt

[YourPlumTree]

Hi all, like many others, our favourable mortgage rates are coming to an end (July 2027) and we're trying to work out what is best to do - or if we can even keep our house.

Some stats: house worth anywhere from £410-£500k. Outstanding mortgage £300k. We are young enough to have 40 year term.

Household income (before tax) is £100k.

Mortgage currently is £1250 a month.

Here's the kicker, we have about £40k unsecured debt (credit cards and car loan).

The reason for the debt... we tried to live normally with 2 children and childcare costs, we had a job loss a few years ago and one salary reduced by tens of thousands pa. But I've just qualified in a good profession now, so living within means should mean debt no longer builds. It was kind of a plan, but a short sighted one which did not predict the current state of things. We're prepared to face the music now.

Monthly outgoing on this debt is close to 1k, but it's all on 0% cards so...

The main issue is it obviously affects our affordability, as it should because we are struggling with the high monthly repayments.

My question is, Would you consolidate the debt to the mortgage when remortgaging? It will likely bring our monthly repayments down overall (even with the shocking rates currently), but increase amount repaid in the longhaul.

Ta x

In your shoes id go to a mortgage broker and run scenarios.
They know what the issues actually are. Debt consolidation might be an idea, but not one to take lightly.

Not if you’re currently on 0% across all unsecured debts. Adding them to a mortgage onto a rate of 5-6% and extending the term isn’t advisable. A good broker will have to sit in front of a debt consolidation calculator for each one and justify why this would work in your favour, in the long term, which is unlikely.

If you add your cc debt to the mortgage you will pay interest on that for 40 years and you will reduce the equity in your house.
If you only make the minimum payments this will drag on for ages.
Check the terms of the loan, can you pay more each month to reduce the period, if not can you pay it early without penalty and save an amount each month towards a lump sum to clear it.
Make a priority of clearing as much debt as possible before you have to redo your mortgage.

You'd be mad to turn unsecured debt into debt secured on your property. You'd also be mad to voluntarily choose to pay interest on your debt as its currently 0%.

Stay with your current mortgage provider. Log on and pick a new deal. It takes seconds. You won't need to have any financial checks or affordability assessment.

0% is not really 0% as everything the 0% term is up (18 months 24 months etc) it costs about 3% to move it to another 0% card with a balance transfer. Still cheaper, I agree. But the hope is we'd have the freedom to overpay the mortgage (potentially aggressively) if we put the debt on the mortgage.

The situation that got you into debt has gone now so going forward you can start to pay the debt down. You could consolidate debt into mortgage but then overpayment your mortgage. You'd need to see a good broker. If you did a fixed rate mortgage of 5 years you could overpayment mortgage but also save so that when you came to remortgage again you could do so for a lower amount. My DS bought a house 6 years ago and really stretched himself on a 3 year fixed mortgage. He got a promotion after 2 years. He started to overpayment his mortgage. When his fix came to an end he remortgaged taking off 6 years off of his mortgage because of overpayments and he paid a bit more because of his promotion. He's on the cusp of another promotion and if he gets it he'll overpay again in hope of knocking off a few more years . He only ever does 3 year fixed at a time.

I appreciate everyone's comments, I understand what you're saying completely. I feel we just desperately want to free up the £1k a month we're spending servicing the debt, but we might just have to be patient.

I feel like we could have easily bought our house for £40k more. We got a bit of a steal. Neighbours bought the same house 6 months before, and a couple of years after for £115k and £130k more than we spent. So I suppose I feel a bit relaxed about increasing our mortgage and putting 40k on it. I would just treat it in my head as that being what we paid for the place.

You won’t free up £1000 a month though. You’ll be paying for it and paying interest. If you can get one of the cards down to zero you can normally jiggle them. I do that with mine.

I am a believer that when lessons hurt you remember them.

The rationale for moving the debt from the 0% cards to the mortgage feels a bit similar to the rationale for building the debt in the first place and for me this would be the biggest reason not to do it.
You would be again using credit to continue you to pay for lifestyle. I think there would be a real risk of not overpaying and letting the cost of this period linger in the background for the rest of your working life.

What would you want to use the £1000 a month for? Can you use that as a motivator to keep within the budget and to get the debts cleared as quickly as is feasible.

Depending on the value of your house it will probably change the rate you can borrow at - £300k on £410k is 72% LTV and £340k is 82%, at £480k is 62% and 71% - the rates are drop below 60, 70, 75, 85 and so on.

I did a simple calculator and the difference between £300,000 and £340,000 is roughly £250 a month - say you fix for 5 years, that £250 will be £15,000 and you will still owe ~£327,000 at the end of the 5 years. How would it feel to still owe more than half of this debt? If you did add the debt to the mortgage then amount left at 5 years would be ~£288k - you would have paid £15k towards the debt but still owe nearly £40k more than you would do otherwise.

The post by @Superscientist nails it. Consolidation is rarely advisable because it is a trap that increases debt and doesn’t address the spending issues that caused the debt. The latter might not be a concern for you given it was related to a job loss - only you know.

I would sit down with a blank piece of paper and work out how ruthlessly I could get that debt down by July 2027 - and I mean ruthless. Been there and done that. £15 at the end of the month - went into the credit card. And then I would work out the very minimum I could add to the mortgage. £1,000 on 0% should mean £32,000 by June, right? Can you think about adding £20,000 to the mortgage and work on clearing the £12,000 remaining quicker?

It would free up about £700 a month. But yes, paying more in the Longton!

If you keep doing what you're doing you'll be debt free in under 4 years, add it to your mortgage with interest and you'll be paying it back for at least a decade. Your mortgage is already high for your income. Don't make it worse. If anything fix for 3 years and look at working towards shortening your term by the end of that period, the amount of compound interest in a 40 year mortgage is astounding. We have 250k left on a 20 year term and pay 1400, we also overpay by standing order. Don't aim to have a mortgage at 70

Yeah, I don’t believe you’ll have learnt your lesson if you just shove it on the mortgage. You need to find the discipline to pay it off and then use that money to build an emergency fund to stop it happening again.

You could take a middle road instead of taking out a personal loan with your bank to pay off the credit card debt over 5-7 years. Juggling 0% cards is risky because your credit rating could bomb leaving you with few options for affordable transfers whereas a loan will set the outgoing payment so you know where you are and most loans will allow overpayments like a mortgage so you can pay it down faster when you can. Just make sure to cut up all the credit cards so the debt doesn't start increasing again. The car loan you should just leave as is - it's just part of the ongoing cost of running a car so just think of it as an essential bill like energy and council tax that always needs to be paid regardless.

What would you do with the £1,000 it frees up?

I’d recommend listening to the Financielle podcast. They talk a lot about the importance of grinding debt out to learn from it. And they have a system of steps to follow to financial wellness.

I wouldn’t be consolidating though. I’d be focusing all my efforts on getting that credit card debt paid off as quickly as possible and ideally before the 0%s are up. Either way, 3% every 18-24 months will be a much better interest rate than adding to your mortgage.

Maybe use a calculator to find out what adding it to your 40 year mortgage would actually cost - that might put you off.

I disagree that our mortgage is high for our salaries. 20% of income on mortgage or rent is normal. They say up to a third is standard. We couldn't do much cheaper in our area, and if we were renting our same house, the rent would be about £500 more a month.

28% is the usual limit for sensible budgets although I know for many that's a pipe dream not 33%. Also, having a mortgage over 40 years is not the standard. and at the moment, you need to knock £12,000 off your post tax earnings and use that as your budgeting the money that you are obligated to use paying back these debts is not your money it's the credit cards.

It will be more like £500 more that you are left with, the higher rate for the mortgage plus rolling it in to your mortgage will take you from £1200 to £1700 a month and the £250 a month will only be paying the extra interest of adding the £40k to the mortgage. You feel frustrated at the moment paying £1000 a month servicing the debt and that is with nearly everything you are paying back being paid towards the debt. How would you feel when you will be paying to service the debt and not paying any of it back.

What is your partner's take on this?

It is hard when there is job insecurity, I was made redundant last year when pregnant and am looking at 2 years out of work as I am now too unwell for work. I will be changing sector I imagine as my old career isn't practical any more. At the moment we are living as if I won't bring a salary in so that when i do what ever it will a changeable improvement.

I would be sitting down, going through your budget super carefully and seeing what you can do to get the debt down between now and remortgaging.
Go through the sums, how long will it take you to pay it back if you carry on with the repayments.

If you add it to the mortgage, assuming average interest rate of 5% it will take your total mortgage cost from ~£695k to £787k ... It would cost you nearly £90k to pay off this £40k debt!! It's not a little more, it more than double what you currently owe.

As others have said, you’d be really stupid to do this OP. Don’t turn a debt you can pay off in 4 years into debt you will be paying off for 40 years.

Really appreciate this, very detailed response. Our term isn't 40 years, I was just making the point we have that option as obviously not everyone does.

I think there is a disconnect with how I am treating mortgages, as I am not going to have the same mortgage, amount, property value, income, and term for the duration... I'll probably move, downsize, reduce term, payoff a lumpsum etc. So no way will it just be 40 years of paying monthly like this. I also consider it as fine to be paying monthly for where I live, renters have to and get no asset. So I was hoping I could use the asset to make life easier now. But I can't disagree it's not financially smart.

You've got almost 9 months before your mortgage rate changes. If you consolidate you'll be paying interest for the next 40 years...

In your situation I'd be paying every penny I could to get that debt down. Pay HARD. On £100k a year with only £1250 a month mortgage how much can you spare (and I mean, if you want this to go away as much as possible by July you're going to have to work HARD) to pay off the cc debt between now and then? Just paying your current 0%/£1000 a month isn't going to make much of a dent in that debt, can you increase to £2k a month, or more?

Assuming your household income is now ~£60k this will still leave you £1750 a month for bills etc, a budget many of us pays ALL our expenses each month (not just cc debt and mortgage)

It is high for your income and lifestyle because you're having to extend it over a 40 year period to afford it. We earn more than you and our mortgage is less because we cut our cloth when we were earning less, we overpay, we took extra work to pay for our wedding and home renovation and didn't put it all on credit. You're not making good financial decisions and adding 40k to your mortgage is another one

ETA clarification I meant message amount total. We also live in the south in an expensive address in a similarly priced home, our monthly payments are higher, the amount we owe is less, meaning over the medium to long term we will pay a heck of a lot less interest, and interest is dead money

Adding the unsecured debt to your mortgage is a recipe for disaster. You’d be opting for real, long term loss. Run the figures through something really basic like ChatGPT and see how much that 40k would cost you. Crazy amounts.

You may not be able to move to another 0% card, at some point they want you to be paying interest or pay the debt off, it's not a charity. I would pay off as much as you can and roll on the remainder of the 0% debt (if you can) or add it to the mortgage if it's no longer 0% and try and pay extra off the mortgage as you say aggressively.

What are you spending your incomes on? Are you being tax efficient ie: is one of you a HR tax payers? Do you regularly do an SOA review your budget. Do you know all your outgoings? Do you both have personal spends or is this capped?

We earn less than 2/3rds of what you do but service higher debt (but it is stoozed and all stashed in high interest savings accounts).

I would review your budgets and also write down absolutely everything you both spend in a month to see where you can cut back (check out money saving expert too).

I would set yourself a challenge until next July to see how much you can throw at the debt / save ie: pay the minimums on the cards but put the rest into high interest savings until then. Think that every unnecessary spend and purchase is potentially costing you money as it reduces what you can overpay.

Also, do you make the most of your supermarket loyalty schemes, cashback sites, bank switching and using employee benefit or discount sites to save money or buy gift vouchers for everyday spending at discount? I save £100-£150 a month by doing this.

I think we have things tight day to day, the real costs come from the kids... childcare and activities. Otherwise there'snot much wiggle room. I do use the perkbox 4.5% off weekly shop, and nectar card - saves about £20 pm. I don't know how it's saving you £150! A lot of our other spending is in small businesses etc where I don't think there's any cashback options.