Advice please - pay mortgage off or some/all debts?

juicygirl

Hi all,

I am looking for some advice. Me and DH are in early 30's with one child. Due to a recent illness ( DH) our decreasing mortgage plan has paid out and we now have enough to clear our mortgage in full with a little left over (SEE SIG). However:

1. We can only pay off 10% per yr without incurring penalties. If we paid it off now we would incur approx £10k in early repayment charges.

2. We have debts:

Me : -£15k on a CC at 0% for next 22 months
- car finance with 2.5 yrs to run (to request settlement figure on Monday but approx £9k left to pay) paid at £290/month

DH: - £6k CC debt
- car finance (approx £26000 to pay) pays £393/month/3 years

3. We borrowed money from a parent (interest free) as deposit for our house and still owe £24k. Morally, I want to pay this immediately although family member is not rushing us.


So do we pay off family member, make 10% payments and pay off rest when fixed rate is up and be left with small mortgage. Pay off debts but continue with car payments since these will now be easily affordable? Leave 0% debt until interest kicks in?


Other things to consider:

- I am currently on mat leave and will be retuning to work next year with a part time with drop in salary from £75k to approx £35-40k before tax but this is not clear.

-DH has returned to work on salary of £29k

- we will likely require funds for IVF if we wish another child

- we now have no other savings

I appreciate this post is a little rambling and I have just poured my thoughts onto page as they come! This has all been a little overwhelming!

Thanks for reading if you are still with me!

wierddumpling

You say it would incurr 10k of early repayment fees to pay off your mortgage but how much would you save in interest?

Are the car finances interest free?

juicygirl

The car finance is not interest free, we still need to find out rates ( we only got this news this morning).

I have no idea how much we would save in interest in the 18 month period until we could pay it or majority off. The interest will be greatly affected by the 10% overpayments we could make now, in Jan 2013 then Jan 2014 before fixed term ends in May 2014. The first of these would be £28k.

HelenDaveKids

I personally would concentrate on getting your debts sorted as you have a limited period of interest free. Perhaps with a nominal amount each month paying of your relatives borrowing just to show your intentions.

juicygirl

We have being paying off the relative At £250 a month already. Since they are retired and in a budget themselves I feel it would be wrong of us to be sitting with this money and not pay them off.

Sepa74

Hi,

You have a lot to think about. Firstly, you need to understand the interest rates on the debt, then you need to think about your other requirements that don't involve interest rates, but are still things you need to consider - the debt to your family member and your potential need to fund IVF - how much this would cost and when you would want to do it.

With regards to your debts, use a snowball calculator to enter everything you owe and the interest rates, and it will tell you what to pay off when to minimise the amount of interest you will pay. You can include the debt to the family member in this.

This will give you lots of food for thought. You should also do an SOA, which you can post here, and people can give you advice as to where you might be able to make savings.

With regards to the IVF, work out how much it is likely to cost and then divide it by the number of months between now and when you want it, this will give you an idea of how much you need to be putting aside. You can treat this like another debt in your snowball calculator, with the minimum payment being the amount you need to save each month.

When your salary drops, do another SOA to see what the position is then.

I hope this helps, good luck!

HappyMJ

I would never pay a mortgage ahead of time....until everything else is paid off and I have 6 months of emergency savings.

I would always make sure parents, friends, family are paid first...unless you have very high interest debt such as 30% on credit cards. Then I'd pay those first.