Overpay Mortgage or Pay Down Unsecured?

ToMoCo

Just looking for some other opinions on the best way to tackle this.

Current situation: -

Mortgage outstanding £142,000 (Value March 06 £190,000).
Currently paying £915/month repayment on fixed rate 5.19% that ends next month (Bristol & West).
B/W svr is I think 3.49% potentially saving circa. £200/month if I opt to leave term the same and switch to svr for now.

Unsecured debts - £36,000.
Currently paying approx £1400/month towards these which includes about £450/month above the minimum required to service these. About £12k of this is on 0%. Max Interest is 7.9% apr.

Income
Me: £40k
OH: £5k p/t, £3.5k rental income (after expenses), £7k student grant.
Savings £6k

My current plan is to pay down as much of the unsecured as possible over the next 8 months while on B/W svr and then go for a fixed rate mortgage, but does anyone think I would be better ploughing the overpayments into the mortgage or forget the overpayments and build savings?

Robert_Sterling_3

Pay off debts with the highest APR first as long as the APR is higher than the SVR. :T :j :T :j :T

getmore4less

Look up the term snowballing, that describes how to tackle multiple debts.

here is a calculator that can help decide what to do

http://www.whatsthecost.com/snowball.aspx

allthough I don't think it optimises for changing rates

ToMoCo

Thanks to both for replying.

I understand that paying the highest interest rates first will be cheaper.

I guess I am looking for views on what would be better when I come to remortgage - less unsecurded debts (thus improving affordability) or a lower LTV?

getmore4less

ToMoCo wrote: »

Thanks to both for replying.

I understand that paying the highest interest rates first will be cheaper.

I guess I am looking for views on what would be better when I come to remortgage - less unsecurded debts (thus improving affordability) or a lower LTV?

If the budget is under control(looks like it) and the risks of getting back into debt have gone,(eg you will overpay/save the money not spend it) then reducing the cost of the debt is the way to go if you can

You are currently on a march 06 75%LTV so may be ok when you come to remortgage but may not be able to add all the debt, going up to say 80% may cut out some deals so the bigger debt costs more for longer.

I would plan to have any extra secured borrowing on a schedule that is shorter than if you just payed it off as you are now.

So if you unsecured debt free date on current rates is 3years se a goal for 2.5year(or what ever works) don't do it for the full term of the existing mortgage.

The key will be avoiding any high rates when the 0% run out so that is the thing to plan for.

Another thing you may want to look it is the total amount you are generating surplus each month will make an offset worth looking at in the future.

You also could take a rise in rates so remortgage now to a lower rate may give you more funds to tackle the unsecured debt at the risk that rates get ahead of the fixed rates on offer

Something else to consider given the above 2 points and a under control budget.
First direct offser tracker deal is a good one and gives you a lot of flexability if your current LTV is better than it was in 06 you may be able to get a bit more out of FD and be in a good position to over pay even more on the unsecured with the mortgage on 2.89%

Income multiples may be an issue but you can demonstate afforability.

getmore4less

Another option to consider is a temporary extention of the term to 35 years that would reduce the payment to £734(£586)or interest only £614(£412) and have even more to tackle the higher rate debt.

This could clear the unsecured in under 18 months


Any room on the rental property to get cheaper money?

ToMoCo

getmore4less wrote: »

Any room on the rental property to get cheaper money?

Flat is mortgage free but BTL rates seem pretty close to the most expensive unsecured rates I have anyway

Meant to add - re: extending term - didn't want to give B/W any idea that i'm stuggling to meet payments in case I get offered a better deal with them. Will have to give them a ring though, rates don't seem to be on their website.