Remortgage/credit card debt advice

toucan1989

Hi everyone, I'm looking for some advice... have looked through a few of the other posts, but nobody seems to be in the same situation so thought I'd post separately and see what you all thought.

To give a bit of background, my partner and I bought our first house 2 1/2 years ago. We saved up a 5% deposit, but not really knowing much about what we were doing, fixed in on a five year deal at quite a high 5.99% interest rate (our provider was one of the only offering deals for people with 5% deposits at the time). We have only ever planned on staying in our current house for around five years as it is so small and we ideally wouldn't want to have children here, so would be looking to move home 2 1/2 years from now.

I've been doing quite a bit of reading up on this website & forum, and have worked out that if we were to save up the £4440 early repayment penalty over the next six months and switched to a new two year deal for our final two years in this house, we would have knocked an extra £8000 off our mortgage by the time we move home (we would overpay the £222 each month that we'd be saving on the new deal). Taking the £4440 into account, we'd still be up £3560 when looking to move house.

Seems like the perfect solution, but here comes the spanner in the works! We currently have three credit cards between us, each with a £4000 limit. We use one each for food shopping etc each month and repay in full each month (so no balance on these cards), but the third credit card has a balance of £3720 on it (interest free for another year).

So my questions are really, is it possible to remortgage with existing credit card debt? Does anyone have any experience of this? We could probably afford to pay off about £50 per month for the next six months, but we wouldn't have brought it down by very much at all by the time we were looking to remortgage. As soon as we have saved up the £4440, we would be able to start paying £650 a month off the credit card balance, so could probably clear this before the interest free period ends, or switch to a new 0% deal if we still had a little bit left on there.

Sorry for the essay or if I've got anything mixed up, all of the above is just stuff I've worked out from reading the forums etc, so hopefully I've got it all correct. I'm interested to hear your thoughts, and thanks in advance!

Thrugelmir

Have you factored in costs of remortgaging to another lender?

If you save £222 a month over 24 months that's £5,328. Less the £4,440 redemption fee. Then the potential savings may not be as great you are calculating. I'm unsure where your £8k comes from either.

You may do better. By planning to clear your credit card over the next 12 months along with making overpayments on your mortgage. Then in the following 18 months continue to make overpayments against the mortgage. With less debt owed your monthly payments will clear more of the capital owed and incur less interest charges. Remember majority of mortgages are charged interest on a monthly basis so overpayments have a snowball effect. Start small but progressively roll up over time.

toucan1989

Hi Thrugelmir, thanks for taking the time to reply.

It could be that I've worked it out completely wrong, but this is how I've worked out the £8000ish (lots of detail, but perhaps someone will pick up if I'm working something out wrong!).

Staying with current lender: using a 'how much have I paid off my mortgage?' calculator, we would owe £105,924 at the end of our five year fixed term deal.

Moving to new lender: our outstanding balance (in six months) will be £111,104. After two years on the new rate, it would be £103,161. The overpayments calculator on this site shows that if we made £222 in overpayments each month for these two years, the final amount outstanding would be £97,704.

I've got £8220 from taking away the amount outstanding after five years if we switch, from the amount outstanding after five years if we stay as we are.

The remortgaging costs are something else I'm unsure on really, the deal I'm looking at shows £99 product fee and no house valuation fee, I'm not sure what other costs there normally are as I've not had to do it before? My main concern was with if this high card balance would put lenders off, or do most people usually have some kind of debt, and as long as they could see that we could afford the mortgage, this would be fine?

Anyone know anything about this? Thanks!