Addind debts to mortgage - bad idea or OK?

Obviously, not ideal, because :-

  1. Its now secured on your home.
  2. Its paid off over a longer period.
  3. You pay more back because of the longer period etc.

However, when theres a huge excess of equity in the home, would you consider this to be an OK idea rather than struggle to pay larger interest rates on loans and credit cards?

For instance, in my circumstances, my home is currently worth about £240K with an outstanding mortgage of around £120K (yes, I was lucky to buy before the prices started going up).

Reply to
paulfoel
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  1. Its now secured on your home.
  2. Its paid off over a longer period.
  3. You pay more back because of the longer period etc.

However, when theres a huge excess of equity in the home, would you consider this to be an OK idea rather than struggle to pay larger interest rates on loans and credit cards?

For instance, in my circumstances, my home is currently worth about

240K with an outstanding mortgage of around 120K (yes, I was lucky to buy before the prices started going up).

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Well, it's the same amount of debt, but at a lower interest rate. So, if you pay the same amount each month, it will pay it off over a shorter, not longer, period.

Reply to
GB

Those are not good reasons for it being a bad idea.

It's a better idea not to have extra debts at all, of course, but if you do already have them, or are contemplating taking them on, then it *is* OK to add them to the mortgage, because:

a. The interest rate is lower than borrowing as a "personal loan" or, heaven forbid, on a credit card long-term. This is an *advantage* of it being secured on your home. So your reason (1) is only a problem if there is strong risk that you may end up having difficulty with repayments, leading ultimately to a repossession (however, even if the loan were unsecured, you would have the same problems if you got into difficulty, and moreover they would come to a head sooner due to the higher cost involved, and there's no guarantee you would not end up having to sell (or borrow against) your home when the bailiffs come to enforce payment of the unsecured debt).

b. Your "bad idea" reasons (2) and (3) are bunkum. If your mortgage has the flexibility to permit extra borrowing, it will also have the flexibility to make unscheduled early repayments whenever you can afford to make them. Hence there is no reason why the added debt should be paid off over a longer period than taking an unsecured loan. Quite the contrary, in fact, because as you are paying less interest, you should be able to pay it off a little faster.

Absolutely. Unless, of course, the value of the house drops by 90%, which would turn your equity from being +50% into -400% of its value.

Reply to
Ronald Raygun

Good point....

LOL. Hope not....

Reply to
paulfoel

It puzzles me how people can see this "equity" as if it's some kind of asset. It's not (unless you sell up and go live in a cardboard box). It's really just a f*cking huge overdraft facility.

Andrew McP

Reply to
Andrew MacPherson

Or buy a cheaper house....

Reply to
paulfoel

Or rent. Equity *is* an asset, more pricisely the house is the asset and equity is the excess of its value over the liability represented by the associated mortgage debt.

Reply to
Ronald Raygun

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