Good idea to pay of debts with equity when moving?

Nara

We are thinking of moving this year, currently our mortgage dropped to 2.5% after our fixed rate ended in Jan so we are on a good rate.
Obviously we wouldn't be able to get this rate if we decide to move and get a new mortgage.

We have debts of roughly 12k on a credit card and a loan. This affects the amount we are offered to borrow. Our equity in the property is approx 40-50k depending on how much we sell our house for ofc.

Is it a good idea to pay off our debts out of this money, therefore being able to borrow more towards a new house but having a higher monthly payment? Or should we leave the debts but not be able to borrow as much :S

I can;t decide on the best course of action, I have a finacial advisor ringing me some time over the next couple of weeks, but i feel so clueless about mortgages and stuff that i want to be prepared!

There are ofc the other costs to take into account, estate agents/surveys etc etc, all eating away at the equity or do you normally add these onto the mortgage?

I have only ever bought one house, the one i am in and never had to sell and buy all at once, in a way im wondering if i will be able to handle the stress:rotfl: how does everyone else do it!!

samizdat

Nara wrote: »

We are thinking of moving this year, currently our mortgage dropped to 2.5% after our fixed rate ended in Jan so we are on a good rate.
Obviously we wouldn't be able to get this rate if we decide to move and get a new mortgage.

I assume you have checked your mortgage terms, and that you have confirmed your existing mortgage is not portable. If not, do so.

Nara wrote: »

We have debts of roughly 12k on a credit card and a loan. This affects the amount we are offered to borrow. Our equity in the property is approx 40-50k depending on how much we sell our house for ofc.

Is it a good idea to pay off our debts out of this money, therefore being able to borrow more towards a new house but having a higher monthly payment? Or should we leave the debts but not be able to borrow as much :S

You need to think about this by first working out the maximum funds you could have available for buying a new house, based on normal lending criteria (not easy, but not hard to get a rough idea). Clearly, you need to take account of all house sale and purchase costs.

Then think about whether you would enjoy having to make the repayments on this largest-possible mortgage. Then, adjust the amount downwards until you feel more comfortable with the balance between the desirability of the new house you could buy with the mortgage funds versus pain of repayments. Finally, work out whether you would need to pay back your other loans, or whether it would be desirable to do so.

Sorry to give such a general answer, but that is the best I can do with the information you have provided. Obviously, lenders all have slightly different criteria and pricing, but you can find all the info you need here about standard lending multiples (of single and/or joint incomes), loan-to-value ratios, typical mortgage pricing, moving costs (solicitors fees etc.) In any case, your financial adviser should be able to do this work for you, although it is a good idea to have a stab at it yourself.

Thrugelmir

Nara wrote: »

Is it a good idea to pay off our debts out of this money, therefore being able to borrow more towards a new house but having a higher monthly payment? Or should we leave the debts but not be able to borrow as much :S

Do you have any savings? You'll need to raise a cash deposit most likely of 10% in order to exchange contracts on the new property. Also the purchase / sale costs will be paid out of your equity, and these do mount up.

So while interest rates are low suggest you tackle your existing debts. If you can afford a larger mortgage then you should be able to make inroads into them. As existing debt may well influence the amount lenders will advance on the new mortgage.

Nara

samizdat wrote: »

I assume you have checked your mortgage terms, and that you have confirmed your existing mortgage is not portable. If not, do so.

Wow thank you, I know this sounds naive (and i am) but i didn't even know you could do this!

From looking at it it seems I may be able to port my mortgage, by this i presume it means the amount we have borrowed at the moment will remain at the same rate and the further borrowing will be at a different rate.

This is what it says on the website :

When you move home with XXXXX, you have the option to select a new mortgage from our range or take your current mortgage with you; known as 'porting' (conditions apply). If you port your current mortgage, any additional borrowing must be taken on a mortgage from our current range.

Many thanks!

PS: Also out of interest I presume you cannot have two seperate mortgages on the same property? Say if i ported my current one over and then borrowed the difference from a different lender?