Question about paying off debt with equity from house sale

geeba88 · 12 May 2015 at 9:05PM

My family and I are relocating to a new town. We've sold our home and have agreed a 12 month tenancy, happier initially to rent whilst we find our feet in our new surroundings.

My question regards the most effective way to utilise around 50k worth of equity we'll be left with once our mortgage is paid up. Specifically, when we come to apply for our next mortgage would we be better off keeping all of the 50k to get the best ltv, or would it be better to use the equity to pay off some long standing credit card debt (approx 5k)?

When I used the Santanders mortgage calculator, it stated I could borrow around 20k more if I paid the credit card debt and was left with a slighter smaller 45k for a deposit. The rates I could borrow at weren't much different either.

Would it therefore generally be advisable to pay off the debt, or go in with the biggest deposit possible? I'm concerned as the effects of house price inflation a year or two down line might well mean we need to borrow more for the type of property we'd like.

Any advice appreciated!

questionss · 12 May 2015 at 9:22PM

I'd pay off the debt, cut up the CCs and put the money you are saving by not having to make minimum payments into your deposit fund. No idea if that's the mortgage savvy way to do it but it's def what I'd do if I had debt.

BristolBob · 12 May 2015 at 9:35PM

To me, it would depend if you could trust yourself not to let the debt creep back up in the coming year. You could easily fritter another 5K if you aren't careful.

ViolaLass · 12 May 2015 at 9:46PM

Definitely pay the CC debt off, it will save you more money in the long run UNLESS its 0% CC.

geeba88 · 12 May 2015 at 9:56PM

ViolaLass wrote: »

Definitely pay the CC debt off, it will save you more money in the long run UNLESS its 0% CC.

The debt is on 0% - just keep switching it around though and paying the minimum balance. It would be good clear it, if I was sure it wouldn't reduce the amount we could borrow for our next mortgage, or mean we'd have to borrow at a higher rate.