Do I overpay my mortgage or pay my debt down?

milliemonster

We are 1 yr into a 3yr deal with Accord. Basically we moved house in March last year and had difficulty getting a mainstream mortgage due to high debt level and missing a couple of payments in the previous 6 months. We ended up on a good deal with Accord actually, decided at the time though to go interest only for this 3 year period to just pay down as much debt as possible and then when the 3 years is up, go back to a repayment.

So, our current deal is Mortgage of £150,000, house value £175,000, mortgage is a tracker of 0.89% above base rate.

our combined annual income is £70,000 pa, our debts were around £65k last year, we are now down to £35k, all unsecured.

We have had no late payments on anything in the last year, I have looked at our credit reports and they are fine, no missed payments, no CCJ's, no defaults etc, but we are still unable to get a credit card on 0% (don't know why?) to be able to shift some of the debt to get it paid off quicker.

So currently we are overpaying the debt each month, saving some for a rainy day etc.

My question is, we recently had a letter from Accord with our mortgage statement suggesting as rates are so low overpaying, we can overpay by 10% without penalty.

Now I know that some of the credit cards are high interest (Natwest one is 23%, others are 14-17%) but I want to be able to get a good deal when our mortgage comes up for review in 2 years. I am now wondering if we would be better trying to overpay our mortgage to bring the amount down to increase the LTV, but it would obviously mean our debts would not get paid off as quickly as we would have less money to throw at it.

What is the best course of action?, I know purely in a financial sense we should pay of the highest interest bearing debt first, but I am worried that when our mortgage comes up for renewal in March 2011 we won't be able to get a good deal because of the high LTV

any advice would be appreciated

Jonbvn

The standard advice is to always overpay the debts with the highest interest first.

Get rid of the card debts first.

Once you get rid of the card debts, given that you mortgage rate is so low consider paying into some regular savers. You can accumulate a good lump sum to pay of your mortgage before remortgaging.

dimbo61

Well done on reducing your debt from £65k to £35k
I would work at clearing all the rest of the cc debt in the next year and then save into regular savers or overpay the mortgage ( depends on your mortgage rate in 12/18 months ! ) or if you can DO BOTH.
GOOD LUCK

maninthestreet

Keep paying off the CC debt, but keep a careful eye on your mortgage LTV. Where (and when) did you get the £175,000 valuation figure from?