Mortgage & Secured Borrowing

vicx4

So I stupidly bought my house in 2007 when the housing market was very high. I also bought using 100% NRAM mortgage & took a loan on this mortgage. Young & naive move!

It went significantly into negative equity. So I've been overpaying for a few years & making good progress, but think I'm now just back into balance as far as LTV is concerned.

So for the next 2 years myself & partner are going to save save save. However, I was wondering, I still have £10K loan with them, so am I better to pay that off first & then save the cash?

I really want to move the mortgage to another provider too so need to reduce the LTV to do that.

We're aiming to save £20K in 2 years.

Any advice will be gratefully received.

Yorkie1

Although you will be paying interest on the loan, I'd get some rainy day funds into savings first; perhaps 3-6 months' outgoings.

Then pay off the loan if it is at a higher interest rate than your savings.

If you remortgage away from nram you'll either need to pay off the loan then, or keep it at a much higher rate. So the only reason for paying it off before a remortgage is to reduce the interest you pay.

Do check there are no penalties for early repayment.

vicx4

Thank you for your reply.

nuzik

Well what rate of interest is the loan? What rate is the mortgage? And what rate do you get on your savings? Common sense would be to pay off the highest rate of interest first and so on. If your mortgage is at high rate paying that off is like saving anyway. The more you pay off the more equity you should have in your home. That's obviously providing house prices do not fall.

vicx4

Thanks.

I understand the common sense approach.

I was aware that if I moved my mortgage from NRAM the loan rate would significantly increase hence my question specifically around the loan.

Thanks for your thoughts.

I think i will do as suggested. Save 3 months outgoings & then once I've saved the additional 10k pay off the loan.

Thrugelmir

vicx4 wrote: »

I think i will do as suggested. Save 3 months outgoings & then once I've saved the additional 10k pay off the loan.

Make overpayments as and when rather than clearing in one hit. You won't earn a similar rate on your savings to the one you'll be paying.

Paying down the loan will also give you a manageable objective to focus on.