Clear Debts or Smaller Mortgage?

[marvin]

Hi,

I need some advice. We have decided to move to Ratoath to a bigger but cheaper house. We will clear about €100k from selling our house. We have some short term loans (3 years) of about €16k (interest rate of about 7%). We also have credit card debt of €7k. My question is whether it makes sense to clear all of the loans we have and have a bigger mortgage for the new house - or should we get the smallest possible mortgage on our new house and keep paying off the loans.

Obviously clearing the credit card is a no-brainer. And I realise that the bigger mortgage means more interest in the long term. However clearing the short-term loans would give us an extra €400 per month. With one kid and another on the way this is very tempting.

Thanks in advance!

 

[ClubMan]

It makes sense to deal with high cost debts but not necessarily by consolidating them into your mortgage such that you will end up paying them over 20+ years and thereby pay more in the long run even if the total monthly repayments will be less. It generally only makes sense to do a mortgage consolidation/top-up to clear other loans if you can arrange for the repayment of the consolidated loan amounts over a similar period to the original loan terms (e.g. 3 years rather than 20+) and also if you do this as a once off remedy to financial problems and take steps (e.g. get rid of credit cards if you can't manage them properly) to avoid getting into the same situation again a few years down the road.