In this climate, what would you do???

Laws777

Hi all, advise greatly appreciated.

We have a mortgage, currently with Northern Rock, ending in Dec 09. I know that seems a long way away and plenty of time for things to change, even slightly but....

3 yr fixed rate, taken out in 06:

House valued at £180,000
£171,000 - Mortgage
£30,000 - Unsecured loan

We've scrimped and saved and....

Figures as at July 08
£168,420 - Secured
£13,240 - Unsecured

Our plan from now until 'shopping for new mortgage time' in Sept 09 was to clear the unsured loan completley and knock another £6k off the mortgage, bringing the LTV down to 90%, thus leaving us more options on the mortgage market.

Now, rumours being 'mortgage rates will go up' and 'mortgages will be harder to renew' - I'm wondering, are we wise to pay off the loan or should we be targetting the mortgage instead?

Not sure if this is a benefit or not but our house is an 'odd' on the street we are on. A 5 bed, detached, large garden, lots of outbuildings, on a house full of terraces. Thus making it a hard property to value.

We have done more work to the house since the NR valuation but will a new lender, in Sept 09, value at a potential 10% less or even more by then? Should we reduce our LTV before clearing the loan?

Sorry for rambling! I hope someone can advise as best they can, although I know obvioulsy none of you are psychics! Thanks in advance

Laws777

Anyone?? I would be very pleased to hear any advice...

_Andy_

I would personally hammer at the mortgage as much as possible - the unsecured loan you have more opportunity to shop around for.

Locoblade

If the unsecured loan is costing you lots in interest, you could always look at getting it on an interest free credit card using the techniques mentioned in the stoozing forum. You'd need to be vigilant to make sure you pay it off / transfer it again so you dont drop onto the credit card standard interest rate, but it may be worth looking at.

hoggums

Ahem - time for a wake up call....

If your house was valued at 180K in 06 then it has likely already lost 10% off it's value.

That's 162K. So you are already in negative equity.

Let's assume your house doesn't drop any further - then to get a semi-decent rate you'll need 90% LTV - so you'll have to reduce your mortgage down to 145K - so you need to pay off 26K in the next year. Do you really think that is possible?

Personally, I don't think anything but an SVR is an option for you this time next year so I would work to pay off whatever is charging you the highest interest rate first, regardless of it being secured/unsecured.

getmore4less

Not familiar with these NR deals.

Are these two loans linked in any way,

Can you seperate them?
If you do what happens to the rates?

What happens to the rates when your term is up Dec09?

Laws777

We are currently on fixed rate at 5.99% for both secured and unsecured.

My understanding is that at the end of the term (Dec 09) we can sit tight with NR and pay (if current situations stick) a high SVR for both parts.

If we remortgage (assuming we still have the loan and have attacked the mortgage) we leave NR with the loan and pay a very high interest rate and subsequently move this to another lender.

After a few sums: our current budgets mean we are aiming to 'overpay' £12650 between now and Sept 09. With regular payments, this means we can clear the loan and some of the mortgage or leave the loan to reduce on its own to £11500 and pay the £12650 off the mortgage.

With £12650 coming directly off the mortgage and regular payments (already taken interest off) of £2608 in that year, the mortgage will stand at £153,161 - obviously 15% less than the value of the house in 06.

I can't emphasise enough how hard the house has always been to value so I'm hoping this will be our saving grace.

I know this isn't a good situation either way but I figure, we need to make a decision now about where are overpayments go. There is no question the overpayments will be made but where?

Thanks for all the help so far... I do appreciate everyones input