Pay off Debt or Larger Deposit

glitteringgem

Hi All,

I am looking to sell my property, I should realistically walk away with £30,000 after fees etc. Ideally I would put all this money as a deposit on a new property but I have around £8k of debt.

Would I be better using some of the £30k to pay off the debt and put down a smaller deposit or put all the £30k down as a deposit?

Thanks

Gemma

MortgageMamma

Hi Gemma


It very much depends on whether the debt is affordable to manage in relation to the amount you wish to borrow for your new mortgage therefore you need to get an affordability calculation done.

This is where it can get complicated - some lenders are more generous than others in how they calculate debt and affordability for a mortgage. The online calculators on a mortgage lenders website are seldom very accurate. You would have to get a "decision in principle" from a lender to confirm what they would be willing to lend whilst the debt remains and what they would lend if they didn't. To do that with many lenders to find the best solution could damage your credit rating, so you are best getting a broker to do the legwork for you and take some proper independent advice.


MM

AnotherJoe

glitteringgem wrote: »

Hi All,

I am looking to sell my property, I should realistically walk away with £30,000 after fees etc. Ideally I would put all this money as a deposit on a new property but I have around £8k of debt.

Would I be better using some of the £30k to pay off the debt and put down a smaller deposit or put all the £30k down as a deposit?

Thanks

Gemma

It would depend on several factors.

Mathematically, the interest rate on the loan and how fast you'd pay it down if it was added to your mortgage. Would you add the £8k at only (say) 2.5% but then pay that off over 25 years so paying much more overall than a (say) 8% interest rate on the loan but paid off over 5 years? Or would you add it to the mortgage but overpay that portion rapidly?

Practically, how disciplined are you? If you put it on the mortgage would you then say to yourself "oh goody I've got no debt so I can afford a new car/ holiday/whatever" and get back in the same sort of debt again?