Advice Needed - What would you do?

DSJS08

Hello,

Please help, all advice welcome. Finance is not our strongest point!!

My wife & I have two loans and wish to look at the best way to get them paid off asap as we're wanting to buy a house to fit our growing family (a 2 yr old and baby on the way).

We have some savings but as we need at least a 10% deposit we can't really touch that. Oh, and the house is worth what we paid for it so no equity.

So, the two loans are £5k @ 8.9% and £10k @ 6.5%. Making a monthly repayment total of £343. They'll be both paid off in 4 years time at the current rate.

Would we be better off putting them both together on a rate of say 9.9% (HSBC) or even 7.6% (Santander - if we can get it)? There is no early repayment charge for either. The £5k has a loyalty payment of £400 if I let it runs its course. Are we paying double the interest rate having 2 loans?

Our credit rating is good (I assume) and we're home owners (mortgage).

Ideally I'd like to squeeze it down to 3 years and can stretch our monthly payments upto £400 if I have to.

Is this a silly question? Apologies if so.

Thanks

CLAPTON

in general, mortgage companies will reduce the amount they are willing to lend if you have debts..maybe look at their websites and see if they have an mortgage calculator


do your loans allow monthly overpayments?

what is your income

DSJS08

Thanks Clapton,

I guess the whole point of this exercise is to reduce the amount of debt we have so when we apply for a mortgage we'll be able to borrow more and get the house we need to accommodate our growing family.

We could just leave things as they are but that would leave us in debt for 4 years when I'd like to restructure it, (and ideally pay less overall) reducing the interest rate/loan period at the same time. If I have to I can squeeze to another £50 p/month.

we have a combined income of £35k.

LDJ2009

Just a couple of questions

Are the £5k and £10k figures current balances or settlement figures ?

What are the monthly payments to each loan ?

chalkie99

DSJS08 wrote: »

we need at least a 10% deposit we can't really touch that. Oh, and the house is worth what we paid for it so no equity.

Bit confused by your comments here.

You already have a house ? Is there a mortgage on it?

It seems you are looking for a larger mortgage rather than a new one so why do you need a deposit?

DSJS08

chalkie99 wrote: »

Bit confused by your comments here.

You already have a house ? Is there a mortgage on it?

It seems you are looking for a larger mortgage rather than a new one so why do you need a deposit?

One word. NRAM. :eek:

I can port it but they want the difference. As you can understand I'm keen to get away from that company asap.

DSJS08

LDJ2009 wrote: »

Just a couple of questions

Are the £5k and £10k figures current balances or settlement figures ?

What are the monthly payments to each loan ?

They are current balances. I rang the current lender HSBC yesterday to check the settlement figure for the £5k loan and they said £4200. I'm guessing the £10k's loan settlement figure would be around £8500.

The monthly payments are £143 an £201 respectively.

snugglepet20

Having loans will lower the amount you can get for a mortgage and they will take that debt off the money they will lend (most of the time). So the best thing is to get rid of them and make yourself more desirable to banks. How much do you have saved up? Are you desperate to move or could you stay put for a while (say a year) and pay off the loans and re-save your deposit?

firesidemaid

when are you thinking of moving?

what rate are you getting on your savings?

if you can overpay on your loans, or pay one off without penalty and then save the money monthly you were using to pay off the loan/s, you would ultimately save/gain money as i expect that your savings are earning you nowhere near what you are paying in interest on the loans.

LDJ2009

What savings do you have towards the mortgage deposit?

Sorry if it sounds like i'm being nosy but the reason i ask is if it were me, i'd use the deposit savings (dependant on what they are towards paying off the smaller loan) assuming you're not earning 8.9% on them.

If you have enough savings to clear the smaller loan, you could then repay the bigger loan over 2 years at around £375 a month based on the 6.5% apr so you could in theory, have paid both loans off in 2 years :T giving you the time to save up for a deposit and also having no debt that will be taken into account on any new mortgage application

DSJS08

@snugglepet20, LDJ2009 & firesidemaid - We're looking to move in 2012 ideally. There is a ERC of £4500 in the current fixed deal with our friends at N-RAM which finishes at the end of 2011.

The savings rate I'm on is 4% with a regular saver account that will amount to in £3k (+interest) at the end of this year. I also have another potential £5k that won't be available to me until I confirm I have a house to buy (family 'gift') plus a similar savings plan for 2011 to save another £4k and another £1k in bonus. The rest I'll steal or beg (but not borrow! ). I need to ideally have a 10% deposit of about £16k.

So as you can see I have a plan to raise that cash and am slightly reluctant to let that go without a real benefit.

Looking at the HSBC's 'How much will we lend you' calculator it seems to indicate that if the 1st applicant is fairly clean of debt then the 2nd applicant's debt doesn't affect the amount they will lend. Not sure how accurate that thing is. Santander's doesn't seem to care about the debt for either of us so will lend (for demo purposes only) the cash we need for the house.

My real concern is that in the coming year or so that the lenders may change that so the amount I owe on these loans could be the deal breaker.

So I guess it's a bit catch 22. Hence I come to the conclusion I'd ask people who will know more than me. So here I am... :cool: