Overpay mortgage or pay off credit card?

Jones01

Hi

Not sure if I'm on the right forum but here goes.....

I've been locked into a mortgage with the Bank of Ireland since 2009 when I bought a property, the fixed term comes to an end in June 2014 and I'm hoping to change to a better rate (currently 4.5%). By June I will have £137,500 left to pay off which makes it 71% LTV. My question is will it make much of a difference in monthly repayments compared to bringing the mortgage down to 70% LTV if I were to pay off more per month?

I currently have 2 credit cards (0%) that I'm also trying my best to pay off (but currently have just under £5,000 on them). I will have to bring the amount I have on the cards down to at least half what it is now otherwise I don't think I'll be able to get a mortgage on my current salary - (the house was bought with a partner, we've split up and I bought him out of the property but his name is still on the mortgage until June when I can hopefully take it off and take on the mortgage by myself). So is it worth paying off more on the cards (to guarantee I can get a mortgage) and opting for whatever mortgage I can find for 71% LTV (and probbaly paying a bit more) OR paying off more of the mortgage to get a better rate and not paying as much off on the cards?! The 0% on the cards don't come to an end until sept 2014 and February 2015.

Sorry it's pretty long winded but I hope someone can help?

Many Thanks

dotdash79

Paying more off the mortgage would reduce the amount you need to borrow which might scrape you through on affordability.

However CC debt is unsecured and has an high affect on affordability, I would pay that off and hope that prices increase a bit more over the next 9 months which might put you into a lower LTV bracket anyway.

The thing you want to happen is for you to have the mortgage on your own, so the option you needs to take is the one that will give you the best chance of achieving that.

For me that is paying down the CC debt.

StuC75

Its a mini Catch 22 scenario..

Lower mortgage balance helps with the earning multiple needed for Basic affordability checks.. What is the 137.5k as a multiple of your earnings - though some look at the total picture re what is accepted..

The credit card payments also come straight off the affordability..

I would look at what the difference in contractual payments would be - i.e. 2k credit card costs more to service than 2k on the mortgage.. So in straight affordability terms it is best off of the credit cards than mortgage..

I have recently completed a Transfer of equity (taking ex off), and although on the 'edge' of earnings affordability (with no other credit commitments either) they were also able to take into account that I had been paying myself for nearly a year...

Is there any scope to delay matters until you could pay off the debt AND get a better mortgage at 70% LTV..

Have you had a recent valuation? Since that may also impact what the LTV would show as - so no point thinking you have it down to 70% for the lenders valuation to come in lower and that money is 'lost' rather than actually having paid the credit card off..

Jones01

Thank you both for the replies.

StuC75 - the 137.5k would be just under 5x my salary, but from the calcualtions I'm able to do on the web it seems most lenders would be ok with this (just about). I have also been responsible for paying all the mortgage payments for the past 2 years so hopefully this would help.

Ideally I would delay until I'd cleared my CC and managed to pay off a little more on the current mortgage, but at the moment I'm paying a lot in mortgage payments every month (£864) so the sooner I can get that down the better, also as I'm with the Bank of Ireland I think I'm right in saying that after June I'll be paying 4.49% (I currently have a main mortgage with them at 4.15% and an extra loan - to pay off the ex, at 4.79%) so after June the 4.15 will raise to 4.49 making my payments even higher so the sooner I can leave them the better really.

The bank of Ireland did a valuation in february at £195,000 when I applied for the extra loan so it should be quite accurate, for now anyway.

getmore4less

have you looked at upping your income

perhaps a lodger upto rent a room limit

jamesd

Higher mortgage balance and lower credit card debts looks best. 75% LTV is where the good mortgage deals really are very widely available, while you seem to be more challenged on affordability. So deal with the affordability part, knowing that you're well away from the 75% threshold.

When remortgaging, consider increasing the term because that reduces the required payment level and makes it more affordable. Really long terms like 35 years can be very good for this, while inflation ends up reducing the real cost of the debt over time, gaining you lots of flexibility along the way. At the moment I'm somewhat worried that you might be sacrificing retirement planning just because you're too financially stressed by short term things.

Overall you seem to have been doing pretty well at coping with the financial stresses of a split.