Is it worth it?

illmonkey

My girlfriend and I bought a flat in December for £140,000. We put down £3,800 as a deposit and took out an interest only mortgage, costing us £585 a month. Were tied into this for 2 years.

Recently we had the properly valued at a staggering £190,000 to sell at £180,000 to £185,000.

We currently have debts in the region of £20,000 and with minimum payments etc we are struggling to live. We were thinking it is maybe a good idea to sell the place, pay all of the debt off (freeing up £800 a month in minimum payments!) and then buying somewhere slightly more expensive that the original property price.

Say we actually sold for £175,000, which is more realistic; we could gain almost £40,000 from the sale. Now, I know rough costs of moving, which is going to be in the region of £10,000 (is that right?!), but that still leaves £30,000 we can put down as a deposit for the new place. We will also have an extra £800 a month freed up from the minimum payments, so we could afford a bigger mortgage.

Can anyone offer advice?

Jorgan_2

An increase of about 35% in 6 months seems incredible. How many valuations have you had & did they all come out at a similar level?

Don't forget if your property has increased by 35% in 6 months, which I doubt, other properties in the area will have increased by a similar amount so you may not be able to buy a property close to the original purchase price.

illmonkey

I should of mentioned that we have done work to the property.

I understand the whole market would of gone up. But if i clear my debts from the money we make, i wouls free up around £700 in minimum payments. I could get a nice house for that alone, let along the current mortage!

dreamalittle

If you used the equity to clear your debts of £20,000, you wouldn't have £30,000 left for a deposit on a new place - you'd only have £10,000 (assuming you actually did have £30,000 after all costs).

Also, it probably wouldn't be a good idea to get a much bigger mortgage, if you're currently struggling to make repayments - you'd have to make sure the new mortgage was well within your means, otherwise you'll only end up struggling again or in more debt.

illmonkey

You're right, my mistake about the deposit. Typing and not reading what i put.

My point is, with the debt, i have huge minimum payments plus the mortage. Not the mortage is £585, plus £700 in minimum payments, if i clear all of those debts that frees up £700 a month extra.

I could then buy a place for, say ,£175000 around here, which is doable, mortage would go up too £1000 (with repayments) and im still up £100 and have no debt.

dreamalittle

If you can do it like that, then I'd say it was worth it - you'd be debt-free (apart from the mortgage, obv), and you'd be able to get onto a repayment mortgage instead of IO. Good news all round. All depends on getting what you want for your place, and finding somewhere else you like for a low enough price, though.

You say you're tied in for two years on your current mortgage - have you included the penalty for repaying early in your calculations?

PhilDS

If you're happy where you live, why not remortgage your place to release the equity and pay off your debts that way. Also, you'd save most of the £10,000 costs you budgeted for.

This is my personal opinion, I hate selling and buying, it's far too stressful! :mad:

illmonkey

dreamalittle wrote:

If you can do it like that, then I'd say it was worth it - you'd be debt-free (apart from the mortgage, obv), and you'd be able to get onto a repayment mortgage instead of IO. Good news all round. All depends on getting what you want for your place, and finding somewhere else you like for a low enough price, though.

You say you're tied in for two years on your current mortgage - have you included the penalty for repaying early in your calculations?

Well, i havnt taken them into account, yet. I would use them for the mortage again, i asked my broker when we got the mortage what would happen.

He said usally its just a "admin" fee and they just lend you more. After all, im still going to be paying them (MORE!) money.

illmonkey

PhilDS wrote:

If you're happy where you live, why not remortgage your place to release the equity and pay off your debts that way. Also, you'd save most of the £10,000 costs you budgeted for.

This is my personal opinion, I hate selling and buying, it's far too stressful! :mad:

Its a possibility. But i am bored of the currently place (1 bed, no garden).

Besides, i love moving, and i would be looking at doing up a place again.

Shrimp_Stu

dreamalittle wrote:

You say you're tied in for two years on your current mortgage - have you included the penalty for repaying early in your calculations?

Just confirm that your current mortgage is portable if you want to move to another property - that way you shouldn't be liable for an early redemption fee. Also, if you remortgage with your current lender you maynot be able to borrow at the same fixed rate that you are on.
A couple of years ago we remortgaged for refinancing purposes and had to take the SVR from our existing lender but then once our fixed rate had expired we rolled both our mortgages (existing one & remortgage one) into the same product.

real1314

samgoffe wrote:

You're right, my mistake about the deposit. Typing and not reading what i put.

My point is, with the debt, i have huge minimum payments plus the mortage. Not the mortage is £585, plus £700 in minimum payments, if i clear all of those debts that frees up £700 a month extra.

I could then buy a place for, say ,£175000 around here, which is doable, mortage would go up too £1000 (with repayments) and im still up £100 and have no debt.

Ok, you might be "debt free" in one way, but aren't you just shifting the debt into a mortgage? You're going from a £135k mortgage, selling for £180k, lose £10k in costs = £170k, less mortgage leaves £35k. Pay off £20k debt = £15k. Take out new mortgage of £160k on £175k property.

Net result, you've gone from £135k + £20k debts between mortgage and unsecured to £160k debt as mortgage

£5k more debt and a property worth £10k less, and from £45k equity to £15k. (ok, this last point ignores the £20k debt)

It would probably be cheaper to get an un-secured loan for £20k which would probably cost less than the minimum payments and less than the mortage over 5 years where you don't actually pay any debt off. Or extend your current mortgage by £20k which would give you a £155k mortgage, i.e less than you would have with a new move, £25k of equity and still be debt free.

probably a lot of other options too, including selling stuff, cutting back etc to get your debt down a bit in the first place?