Help Needed - where do I put my money to get a better chance of a mortgage?

harryenfield123

Can anyone offer me some advice – I am about to apply for a mortgage in the very, very near future.

I have basically three debts and they are as follows:

Barclay card – I owe £3750

Santander card – I owe £4000

Santander loan – 9 months left to pay total £3100

I have just received a little under £3000 for PPI from about 7 years ago (yah!).

I obviously want to use this to pay off debt – the question is, what is the best option to not only improve my chances of getting a mortgage but to reduce my outgoings?

Option 1 - The obvious one would be to settle the loan, this would save me £400 a month but the settlement figure means I only save £70 in the long run. (I would still be paying interest on the credit cards of nearly £150 every months! (by paying £300 per month only half will be going towards servicing the debt!)

Option 2 -My preferred option is to clear my Barclaycard (because it is the lowest level APR of the two) and take them up on their offer for a balance transfer and then transfer the entire balance of my Santander credit on to it. The Santander monthly interest on their credit card is £70 per month. Basically by doing this, I will have an interest free card for 27 months! (this would be 9 more months of £410 for the loan plus 27 months of £150 to clear it all)

Option 3 - Because I have about an £8000 limit on my Barclaycard, I could also transfer the balance of the loan to the Barclaycard too. (this would be repaid within 27 months at £300)

I know which makes the best financial sense, but the main question is, what is best for my credit for my credit score and improve my chances of a mortgage?

gazman100

OK, I'm not an expert, but I would say that increasing your credit score (whatever that means based on these boards) and improving your mortgage chances may be different.

Last time I changed mortgage the problem I had was not credit worthiness but the affordability checks, i.e. how much free cash do you have available each month. I found paying off the remaining 3 months of a £200 monthly car loan made a massive difference despite being only a £600 debt.

Depends on circumstances though. Have you tried a mortgage calculator to experiment with what it says you can borrow? Yorkshire do one (I know as that's where I got my mortgage) as I would imagine many other lenders do.

gazman100

Actually just noting your comments about barclayard and interest free periods. You know that if you transfer a balance to an interest free period, they are obliged to pay the most expensive debt first. So you can transfer the Santander bit across and when you repay, they pay off the interest accruing existing bit and the interest free chunk remains. This didn't used to be the case and they did the opposite until the law changed (2 years ago?)

harryenfield123

Thanks for the advice - I have just discovered that I cannot transfer the loan to the card because Barclaycard do not do “super balance transfers”, that is to say, they will only accept the balance from the Santander card (not the loan)! I would still rather do this – clear the balance of the Barclaycard and then transfer the balance from the Santander credit card. This would save me money but it would appear that it may be in my best interests of the mortgage just to clear the loan!!

Pulling my last few hairs out because it seems counterproductive! I save £70 by paying the loan off as opposed to about £1200 worth of interest on the credit cards over the same period!! How can this make sense?

gazman100

The point is the loan is probably lower interest but shorter term, i.e. a better credit option. But for mortgage providers costs you more per month.

Credit cards are higher interest but longer term and always cost more BUT smaller payments might be better depending on circumstances for a mortgage as the commitments are lower. They are one longer term and generally a worse options you have obviously highlighted above. Still not sure why you think you should clear the balance before transferring the santander though.

Try the mortgage calculators!

harryenfield123

i would clear it first so that there is a zero balance and therefore no interest to pay. when i move over the balance from the santander credit card the whole thing will have no interest charges, ie no interest to pay. I have also just discovered that there is also a zero percent interest to pay if i move money from my barclaycard to my current account. this means i can transfer the sum i need to pay the loan at zero interest too. I will then be left with no interest charges on any of it and will be able to reduce my monthly out going from £710 (£150 on each card and £410 on the loan) to £300 because it will all be on the Barclaycard, and all the money will be going on the servicing the debt instead of about 40 percent being interest!