Many people have taken advantage of the amount of credit that is available in today’s society but not kept a handle on the level of financial commitments that they have now got to maintain. Your home and your mortgage could be the guardian angel that you need to help you sort out the financial headache:
Scenario 1
|
|
Balance Outstanding |
Monthly Payment |
Term |
Total Payable |
|
Mortgage |
£100,000 |
£636.48 |
25 years |
£190,945 |
|
Credit Cards |
£3,000 |
£150 |
Revolving |
£5,000 |
|
Personal Loans |
£7,500 |
£265 |
3 years |
£9,540 |
|
Hire Purchase |
£10,000 |
£275 |
4 years |
£13,200 |
|
Total |
£120,500 |
£1326.48 |
|
£219,635 |
Scenario 2
|
|
Balance Outstanding |
Monthly Payment |
Term |
Total Payable |
|
Option 1 |
£120,500 |
£758.08 |
25 years |
£227,419 |
|
Option 2 |
£120,500 |
£1326 |
10 years & 2 months |
£158,467 |
|
Option 3 |
£113,500 |
£758.08 |
22 years & 5 months |
£207,535 |
Option 1 : Consolidate all existing financial commitments into a mortgage of £120,500 over 25 years and make the minimum monthly payment.
Option 2 : Consolidate all existing financial commitments into a mortgage of £120,500 over 25 years and make mortgage payments at the same level as outgoings in Scenario 1.
Option 3 : Consolidate all existing financial commitments into a mortgage of £120,500 over 25 years and make the minimum monthly payment but also transfer existing savings of £5,000 and also pay in a monthly salary of £2,000 (spent in full every month). The lender then ‘offsets’ these credit balances against the debt and only charges interest on the £113,500 net balance outstanding.
Obviously, when consolidating short term debts within a long term debt, (the mortgage) you are paying interest on the debt over the entire term of the mortgage. As you can see, in the above table although you can reduce your monthly commitments by £568.40 per month, you end up paying £7,784 more back in interest over the mortgage term. In the long run, unless you are willing to overpay on the monthly mortgage payment, you will end up worse off than before.
However, in option 3 you can also see that dramatic interest savings can be made by simply bringing everything under the one roof. This significantly reduces your mortgage payment and you are £12,100 better off than before (assuming interest rates remain constant).
By maintaining payments at the level of the existing monthly commitments, as shown in option 2, this would pay off a 25 year mortgage in just over 10 years and would save £61,168 over scenario 1.
A word of caution – You need to be extremely financially disciplined to achieve these savings and this type of consolidation may not be right for everyone.
Click here if you would like to see the potential savings that can be made using our debt consolidation and flexible mortgage calculators or here if you would like one of our specialists to contact you and discuss your individual circumstances.