Little things mean a lot

With mortgage rates at an historic low and after years of house-price inflation, it seems crazy not to cash in on the value of your home to help you consolidate debts, buy a car, take a fabulous foreign holiday or carry out home improvements.

You certainly wouldn't be alone. Remortgaging has hit record levels, accounting for 43% of total lending last month, says the Council of Mortgage Lenders.

Traditional wisdom says a mortgage is the cheapest form of borrowing. That might have been true a generation ago, but it isn't necessarily the case in 2002.

· Home-owners no longer receive tax relief on mortgage interest.

· Low inflation means the burden of a mortgage relative to earnings stays higher for longer.

· We are not likely to enjoy low mortgage rates for ever, so if you are mortgaged up to the hilt, you could be in for an uncomfortable ride.

· House prices could be set to tumble.

· But most of all, using your mortgage to finance small borrowings over the 15 to 25 years of a typical home loan makes little financial sense.

It might soothe the pain in the short-term with low monthly repayments, but by the end of the term spreading your borrowings will have cost you dear. The surge in popularity of flexible mortgages has encouraged more home-owners to consider unlocking the value of their principal asset and splash the cash.

But unless you have the discipline to pay off these short-term borrowings quickly, you could be better off considering other lines of credit, such as a personal loan, overdraft or cheap credit card.

Let's assume you're an average British homeowner, taking out a new interest-only mortgage of £75,000 over 25 years. We list, below, the things you might like to splurge your cash on and compare the cost of paying for it using your mortgage rather than other vehicles (all products Barclays or Woolwich).

Facing up the the final bill

£500 to consolidate a credit card debt:
Add to mortgage: £2.47 a month (variable interest rate 5.95%) adds up to a final bill of £741.00 after 25 years.

Personal loan: £44.91 a month (at 14.9%). Total repayable after 12 months: £538.92.

Overdraft: Agreed interest rate of £2.80 a month for 12 months. Total repayable: £533.60.

£2,000 for a holiday:

Add to your mortgage: £9.91 a month, adds up to a final bill of £2,973 after 25 years.

Personal loan: £178.82 a month (at 13.9%). Total repayable after 12 months: £2,145.84.

Credit card: Based on 11.9% interest, the final bill you would repay after six months would be £2,073.21; £2133.75 over 12 months.

£15,000 on double-glazing:

Add to your mortgage: £74.38 a month adds up to a final bill of £22,314 after 25 years.

Personal loan: £232.05 a month (at 7.9%). Total repayable after seven years: £19,492.20.

£25,000 for a loft conversion:

Add it to your mortgage: £123.96 a month adds up to a final bill of £37,188 over 25 years. Lenders are unlikely to consider any other form of financing.

Few will consider personal loans beyond seven years. So if you can't afford to pay off your borrowings in seven years or less, using your mortgage will probably be your only option.

£10,000 on a new car:

On your mortgage: £49.58 a month over 25 years adds up to a final bill of £14,874.

Personal loan: £325.13 a month over three years at an APR of 10.9% adds up to £11,704.