Repayment advice please

dj2ball

[FONT=&quot]Hi guys. Just wondered If I could get some advice.[/FONT]

[FONT=&quot]Situation: [/FONT]

[FONT=&quot]Bought a flat in Nov 2007 for £173,000. Put up a £10,000 deposit and got a Nationwide mortgage for £163,000 @ 6.2% for 2 years fixed rate. This is interest only and costs me around £850 per month. The mortgage currently allows up to £500 a month overpayment.[/FONT]

[FONT=&quot]This was our first property. In addition, we have around £7k outstanding on credit cards split between myself and the wife (mainly from our wedding last year).[/FONT]

[FONT=&quot]Next month our mortgage moved to the Nationwide SVR which I’m led to believe is currently 2.5%, and has unlimited overpayments. This obviously frees up quite a significant amount of money that I would like to use to clear the credit cards/build equity in the flat.[/FONT]

[FONT=&quot]Question is will it be cheaper to pay the cards first or start generating equity and overpaying into the mortgage?[/FONT]

[FONT=&quot]Advice please?[/FONT]

JimmyTheWig

The best for the long term will depend on so many variables, but the simple answer is to pay your other debts before the mortgage.
The golden rule is to pay off whatever is the highest interest rate first. Assuming you are paying more than 2.5% on your credit cards (unless you are on a deal then you will be) then pay these off first.

b0rker

Will you be more likely to lose your house if you end up being unable to pay off your credit card?

Or will you be more likely to lose your house if you end up being unable to remortgage away from the SVR when the base rate goes up?

Short term it may make financial sense to pay off your CCs now but I would personally be paying down the mortgage.

JimmyTheWig

Surely they will be more likely to be able to remortgage if they clear their credit cards?

dimbo61

Clear the CC debt first then build up some savings in ISA,s paying over 3% as an emergency fund.
Then sit down and take a long hard look at your spending !
You bought at the hight of the boom with a 5% deposit and your flat is now more than likely in Negative Equity so you need to cut your spending and start to overpay by the £500 a month if not more !