Reducing debt before mortgage application

kingstreet

sanmarco1910 wrote: »

that's a very interesting answer - I am in a similar position - I can pay off all of my credit card debt now but then only have £10k for a deposit or I can roll the debt on (at 0% apr) and have £5k left but a deposit of £15k - I cant decide which is the better?

It depends on the rest of the case data.

If you are 'affordability rich' and 'deposit poor', keeping the debt might make more sense.

If the alternative applies...

Get a broker to analyse the options for you.

AliceBanned

It depends on your earnings and how big a deposit you have.




I've found that my debts have been a major obstacle when applying for a (re)mortgage but if they are under control and you are reducing them quickly that would help.


The less risky your financial picture looks overall the more likely you are to be approved for a mortgage. I a planning on overpaying a loan as that is my largest monthly debt repayment, and after that repaying the credit cards. A broker told me that if I get them down to £5000 I should be ok but that is based on obviously my other circumstances. personally if I can wait it out I will repay them all and then remortgage.

[Deleted User]

AliceBanned - If you do overpay the loan, I'd ask for/make sure the payments are re-calculated too (i.e. lower payments, same term). That'll help in affordability.

If you keep the same payments (so shorten term) although the debt has gone down you haven't really acheived much in a lenders viewpoint - generally for loans they look at the actual cost for loans, but the balance for credit cards.

My car loan was something mental like £229, overpaid it down to £74 a month. Overpaid it again this month so hopefully it'll be about £55/60 a month going forward, waiting for them to confirm. Never going to see the term out - but I'm trying to get the mix (for now) of passing affordability whilst not paying it all off.

AliceBanned

Somerset_La_La_La wrote: »

AliceBanned - If you do overpay the loan, I'd ask for/make sure the payments are re-calculated too (i.e. lower payments, same term). That'll help in affordability.

If you keep the same payments (so shorten term) although the debt has gone down you haven't really acheived much in a lenders viewpoint - generally for loans they look at the actual cost for loans, but the balance for credit cards.

My car loan was something mental like £229, overpaid it down to £74 a month. Overpaid it again this month so hopefully it'll be about £55/60 a month going forward, waiting for them to confirm. Never going to see the term out - but I'm trying to get the mix (for now) of passing affordability whilst not paying it all off.

Thanks Somerset La La La. I hadn't thought of that. I might be being optimistic but was going to pay it off completely before I apply to remortgage. It might not be feasible given my other debts so helpful to know that I can just reduce the repayments if I overpay some of it.