Should I pay off the loan before I apply for mortgage?

jay7_2

I'm going to have a chat with a mortgage advisor later in August and want to start looking for the house in September after my holiday. I thought I'd ask you guys for your opinion on the following so that I could act now before I see the advisor:

I have an outstanding loan (car finance with 0% interest) of £1280 that I pay off in monthly installments of £160. The loan will be paid off in March 2010. Is this likely to lower the max amount we can borrow? Would paying the loan off now using our savings increase that max?

We have savings of about £50k plus we could increase that if we sell the car and buy an older one instead by another £12k. We're looking at houses with £220-250k asking price tags. Cheers.

LoopyPrune

The amount borrowed would be subtracted from your max possible credit offered in some cases, but if your payments are upto date and on time I doubt £1280 would make a great deal of difference. Depends on what % the £160 a month is from your salary possibly, they just want to know you can make the payments on time and wont struggle.

As far as selling your car and buying an older 2nd hand one I always find this is a false economy unless your mechanically minded and can perform some car maintenance as you always lose out to garage labour charges in the end.

jay7_2

Thanks for your thoughts.

LoopyPrune wrote: »

... if your payments are upto date and on time I doubt £1280 would make a great deal of difference.

Never missed a payment.

LoopyPrune wrote: »

Depends on what % the £160 a month is from your salary

I'm on £40k so that would be around 6% of my take home pay.

LoopyPrune wrote: »

As far as selling your car and buying an older 2nd hand one I always find this is a false economy unless your mechanically minded and can perform some car maintenance as you always lose out to garage labour charges in the end.

When I say "older car" I mean a 5 year old car which doesn't normally need that much attention. I can do small repairs and maintenance myself.

LoopyPrune

jay7 wrote: »

Never missed a payment.

Will work in your favour as it is already showing the ability to keep to a financial agreement.

jay7 wrote: »

I'm on £40k so that would be around 6% of my take home pay.

6% is fine they always make an assement of your financial commitments before they make a mortgage offer to ensure you can meet the monthly payments (more so on variable/tracker rate where your monthly payment could increase)

jay7 wrote: »

When I say "older car" I mean a 5 year old car which doesn't normally need that much attention. I can do small repairs and maintenance myself.

I was always told sell a car once it reaches 6 yrs old and buy a car 4yrs old, rinse and repeat. That way you always reduce your losses from depreciation before you hit the 6 year marker where the original manufacturer parts begin to fail. It has served me well over the last few car purchases although this is only somebody elses recommendation so dont hang me for it