Lower repayments or quicker repayment? what's best

mell242

Hi,
Just wondering what prospective lenders/banks look for when assessing you for a mortgage when you have an outstanding bank loan? Are they looking at affordibility? ie. the monthly amount you pay or the quickest amount of time you will repay the debt.

Just asking as I'm looking at refinancing my loan but would be looking at applying for a mortgage sometime soon. Would I be better off going for a 3 or 5 year repayment period with a higher monthly repayment amount or stretching it to 7 years for a lower one?

Any views appreciated. Thanks.

zxspeccy

Hi,
Banks should be looking at "affordability", ensuring that you can comfortably be able to meet the repayments (as should you). On your application they will look at your income and outgoings to work out how much spare cash you have each month (i.e. credit scoring), and off course be checking you credit references.

I would suggest (ideally) you look at a longer term loan, which includes the option of overpayments as and when you can afford them (which shows affordability and quick repayment of whole loan). This will not only satisfy the bank when it comes to meeting the repayments, but also if you clear the loan early then that should go in your favour as well (providing it is the same Bank that you will be approaching for a mortgage). The worst thing you can do is agree to repayments you can’t afford, leading to default of payments and big problems going forward.

I will probably need a bit more information as this is a consolidation loan you will be looking for. Are you looking for the Bank to take on outstanding debts of other lenders? Have you historically had any problems with meeting these payments in the past?

As far as applying for a mortgage goes, then Banks are looking for a decent sized deposit from you (which should also get you a better deal), funds to cover all the fees and a clean credit record. The fact that you have shown that you have borrowed in the past and paid back without problem is also important.

mell242

Thanks for that. I have an 'excellent' credit score according to Experian and have always made repayments of time. I have an outstanding bank loan with my current bank Natwest but wanted to add some other bits to it whilst reducing the monthly repayments. It's currently for 5 years but if I add the extra few bits and stretch it to 7 years I will have a cheaper APR and my monthly repayments will be cut by £80 in total (reduced monthly loan repayment plus the extra I will save from not having to pay the monthly credit cards).

I bring home £1700 per month the repayment would be £200 per month rather than the £250/£300 I am paying out now.