Consolidating debt in mortgage is expensive mistake

People that consolidate debts into their monthly mortgage repayments could be making an "expensive mistake", according to personal finance site Moneynet.co.uk.

The online firm says homeowners that transfer transfer debts racked up on credit cards, bank loans and overdrafts to their mortgage, risk being pulled even deeper into debt.

Richard Brown, the Moneynet chief executive, said: "Whilst including the consolidated debt in your mortgage can look attractive, in the long term it could prove to be a very expensive mistake."

Moneynet warns that if Bank of England base rate rises continue to rise (some experts suggest climbs to as much as 8%), borrowers could be taking on a much bigger debt than they can manage.

Brown says monthly repayments of £300 on a personal loan of £15,000 over 5years may seem expensive when compared to mortgage payments of £100 if consolidated into a 25-year mortgage.

However, he says: "But the reality is that in the long run that will prove to be a more expensive choice.

When consolidated into the mortgage the original debt of £15,000 could spiral to over £33,000 when interest is added. This compares very unfavourably with the total amount repayable on the personal loan of just over £17,500"

"In other words, consolidating the debt into the mortgage means that you are likely to end up paying nearly twice as much."