Using profit to pay off loan or consolidate?

shaneandhisdog

Hi guys - first post!

Sorry if this is in the wrong section, it was either here or the loan section. I was wondering if you could help, first I'll explain my situation;

I currently pay around £600 per month on a £115000 mortgage and £300 on an unsecured personal loan, which was taken out at the same time as the mortgage to pay a £5000 deposit and consolidate a previous car loan.

In April I will have approx £10000 to pay on the loan over the following 3 years and £110000 on the mortgage.

We would like to sell and upgrade in April and will likely sell for about £130000, but we can't afford the increased mortgage payments we would need while still paying the £300 loan payments.

We have two options;
Stay in our current (not that great and in crappy street) house for the next 3 years and pay off the loan - then move.
Good - Loan gone, more of mortgage paid off
Bad - Have to stay here for 3 long years, house prices may have risen out of our range by then

or

Remortgage in April for £170000 to buy a £180000 new place (using £10k of our profit to pay loan and 10k as a deposit).
Good - Get to move in April! Buy house before prices increase. One outgoing payment.
Bad - Half of profit goes on loan

That's my rough assessment, but I have no idea how practical these ideas are or the financial advantages/disadvantages of either in the long term.

Help!

Xbigman

A couple of things. House prices are relative so there is no profit unless you sell up completely. If you sell to move to a bigger property then that property will have increased in value relatively more than yours, so you need to find even more money to move. If you were to think of the increase in your house price as a profit then this extra money to find (to move up) is technically a loss.

If you move and add the loan to your mortgage you have now secured that loan, not something to do lightly. Also, your deposit would only be 6%(ish) which with house prices pretty highly valued could be dangerous.

In your place (and I've been there) you need to clear the loan first. Don't put too much emphasis on being priced out of the market. If your dream house goes up in price, your current house will go up in price a relative amount to it. You would only need to find the difference. With your loan paid off and mortgage paid for a few more years you should not have a problem.
Regards



X

shaneandhisdog

Thanks for the advice, I guess patience is the best option in this case.

tomstickland

I agree, patience will pay off. Plus, what will happen to house prices in the next 3 years is anyone's guess.