In theory, would this work??

chester81

Hi,

Currently looking at various ways to improve our life/finances. As my other posts outline, we are currently in 40K of unsecured and have just started a drastic debt reduction journey!!

Plan 'A' is to crack on with debt repayment until we are clear ( approx just over 2 years) and then move house. This is probably what we will do, however I also want to explore the option of moving earlier, to an area where we will settle for years to come - this is plan B. This would be 12 months from now when our debts are reduced to approx 25K. ( not considering applying for a mortgage with 40K of debt)

Here are the estimated figures for our plan 'B' -

value of current house - 145k
mortgage balance - 75K
Equity - 70K

unsecured debts - 25K

Could we use 25K of the equity to clear the remaining debt and then take out a mortgage of approx 205K to fund the new house? We would prob be spending in the region of 250K on the new house based on the area we are looking at.

I have a few late payments ( never more than 1 month) from 12 months ago so these would be 2 years old by the time that plan 'B' arrives.

This would allow use to move and clear the remaining debts. I know that it isn't advisable to secure unsecured debts but in terms of our bigger picture it could be a one off strategy that would improve our life.

I would welcome any advise as to whether these figures would add up and if we would secure a mortgage?

As I said earlier, we will most likely go with plan A so please can I ask that responses are related to whether or not plan B would work as opposed to just telling us to pay off debts first - we already know that is the most sensible option. I just want to find out if this could, in theory, work for us

comments and advice gratefully received.

HappyMJ

It depends on a lot of factors. Your username is chester81. Does that mean you're born in 1981 and are therefore 34? You could still get a 75% mortgage over 30 years and even if you just make the minimum payments you will still have the mortgage repaid by the time you retire. So your plan works as you're looking at borrowing £150,000 against a £200,000 house.

I'd look at the interest rates. A 60% mortgage could save more than a 75% mortgage even with some unsecured debts but if your debts currently charge a high interest rate then it's a good idea to clear them and repay your mortgage as fast as possible to minimize the interest charged.

The older you or your partner are the less likely it'll work.

getmore4less

I would work towards Plan "BA"

Work out where you want to live aim for around 12months and it will turn into plan "A" if it takes a bit of time to find somewhere or the debt reduction falters

Nothing like a goal to focus the finances.

You need to be sure you can keep up the debt reduction lifestyle, give it over 6 months towards the year and see how things look.

chester81

HappyMJ wrote: »

It depends on a lot of factors. Your username is chester81. Does that mean you're born in 1981 and are therefore 34? You could still get a 75% mortgage over 30 years and even if you just make the minimum payments you will still have the mortgage repaid by the time you retire. So your plan works as you're looking at borrowing £150,000 against a £200,000 house.

I'd look at the interest rates. A 60% mortgage could save more than a 75% mortgage even with some unsecured debts but if your debts currently charge a high interest rate then it's a good idea to clear them and repay your mortgage as fast as possible to minimize the interest charged.

The older you or your partner are the less likely it'll work.

Hi, thanks for your post. yes, I am 34, soon be 35

I missed out some vital info in my original post so I have edited it... we are looking at properties in the 250K range based on the area we are looking at so this puts out LTV at approx 80%.

Never really thought about my age being an issue although it's a really good point. I expect to be working till I am 65 but mortgage free by 60 would be great. It would be nice to think that in the years to come we could overpay and clear it more quickly.

Would my age and the higher LTV be a deal breaker?

chester81

getmore4less wrote: »

I would work towards Plan "BA"

Work out where you want to live aim for around 12months and it will turn into plan "A" if it takes a bit of time to find somewhere or the debt reduction falters

Nothing like a goal to focus the finances.

You need to be sure you can keep up the debt reduction lifestyle, give it over 6 months towards the year and see how things look.

This is probably what will happen in reality. I am definitely not putting my current property on the market until next summer so in reality it's gonna be at least 18 months isn't it by which points our 40K debt will be more like 15-17K giving me an extra 8-10K for deposit.

chester81

Have any mortgage advisors ever secured a mortgage for people with similar circumstances to mine?

hcb42

I would get that debt right down, well under £25K - that is massive for the equity you have (although I appreciate you don't give your salaries - if you are on £150K between you, then perhaps that might be more serviceable!)

The second reason I say it is to remortgage the debt is not a good idea.

Thrugelmir

The one uncertainty in life is the future. I'd set and goal and target it. Then review the situation when you get there. The fact that your are already looking for an easy exit from austerity. Suggests your heart isn't in it. Precisely the reason lenders may be reluctant. As you'll more than likely borrow more again in the future. Learning a lesson the hard way will make you a better person. Also will teach you to manage your money better.

chester81

hcb42 wrote: »

I would get that debt right down, well under £25K - that is massive for the equity you have (although I appreciate you don't give your salaries - if you are on £150K between you, then perhaps that might be more serviceable!)

The second reason I say it is to remortgage the debt is not a good idea.

We earn 80Kish between us.

We probably will go down the plan 'A' route, I just wanted to see if plan 'B' could potentially work for us

I agree that our debt is high in relation to our assets. Very much enjoying seeing it decrease!

chester81

Thrugelmir wrote: »

The one uncertainty in life is the future. I'd set and goal and target it. Then review the situation when you get there. The fact that your are already looking for an easy exit from austerity. Suggests your heart isn't in it. Precisely the reason lenders may be reluctant. As you'll more than likely borrow more again in the future. Learning a lesson the hard way will make you a better person. Also will teach you to manage your money better.[/QTE

Thank you for taking the time to post, however I don't agree with a couple of your comments...

We are definitely not looking for an 'easy exit'. We were simply asking if the figures would add up if we decided to move before our debt was cleared. We will still have to pay the debt regardless of whether we continue with plan A, or take money from our equity. I don't see either of these options as an 'easy exit' - just a different route.

'learning a lesson the hard way will make you a better person' - This is a bit condescending. My initial post was an attempt to get financial advice/suggestions regarding whether or not we could obtain a mortgage based on a specific set of financial circumstances. We don't actually know each other, so comments regarding me becoming a 'better person' are probably not appropriate. My financial acumen is awful and I have made a right pigs ear out of managing our finances; that's what needs to improve as opposed to me becoming a better person.

Thanks for posting.

Thrugelmir

chester81 wrote: »

'learning a lesson the hard way will make you a better person' - This is a bit condescending.

Don't take it personally. People fall into distinct camps when it comes to the manner in which they manage their money and attitude towards money and debt. "Reoffending" is a statistically proven fact. Those that resolve their own issues are far less likely too. The data that lenders now have access to enables them to profile people fairly accurately.