When to use Yellow Apricot - avoiding further loans |
YELLOW APRICOT INSTEAD OF FURTHER LOANS ON YOUR HOME
You may be financially better off by selling your home and going down a rung or two on the property ladder rather than borrowing more money on your home and wondering how you are going to be able to afford the new higher repayments, especially if you are struggling with your mortgage at present.
Example 1
Mr & Mrs Lock have an interest only mortgage of £100000 on a house valued at £140000. They are paying £650 per month including insurances. They owe £20000 on credit cards on which minimum monthly repayments are £1000. Mr Lock earns £1500 per month after tax and Mrs Lock does not work. They have 4 children. Their bank have offered them a secured loan of £20000 on which the monthly repayments will be £350, thus saving them £550 per month.
After paying their mortgage and minimum repayments on credit cards, Mr & Mrs Lock have nothing to pay for everything else, relying on state benefits and credit cards to live on, which is getting them deeper into debt. They are in financial difficulties. If they take out the new secured loan, they will be paying out £1000 and will have £500 per month to pay for everything else.
They should not borrow more money on their home as they will soon after be unable to pay their new outgoings even if the deal looks attractive now.
They should sell their home through a Yellow Apricot Auction and buy a cheaper one, moving the existing mortgage across to the new one.
Mr & Mrs Lock take our advice and sell their home for £135000, buy another home needing a bit of work on it nearby for £110000 and move the mortgage of £100000 across to it. They use the extra cash from the sale of their home to pay off their credit cards and after paying for everything, they have just enough money to pay for a holiday in the sun. Also, their credit commitments fall to £650 per month and with Mr Lock earning £1500 per month, the extra £850 per month left over is enough to pay for everything else and for Mr Lock to treat his family to a meal in a restaurant once a week and for him to get his wife flowers occasionally.
Example 2
Mr & Mrs Wasp have a house worth £200000 and are in arrears with their mortgage. They have missed the last 3 months mortgage repayments due to Mr Wasp having been made redundant and Zeon Bank, their lender, has issued a Summons for repossession. The hearing is in the local Court in 6 weeks time. They have telephoned a broker advertising on television and they are told that they can take out a new loan to pay off the arrears and to stop the repossession.
They get a free valuation and the broker only charges if the loan goes through and they will as a result pay the broker a fee of 2% of the £135000 loan outstanding which amounts to £2700. They have received the forms in the post to sign and send back and the loan will be through in 2 weeks, so they will keep their home. Where they cannot afford their current credit commitments, it is unlikely that they will be able to afford to repay the new loan. Admittedly, the repayments on the new loan may be low at first but when the introductory period is over, they will struggle to repay the loan and they will end up losing their home owing far more money than they do now.
The best course of action would be to put their property into a Yellow Apricot Auction, where we will sell their property before it gets repossessed and give them enough money to put down on a deposit to buy a cheaper property.
« back |
