New loan with impending mortgage application

Bakerfrog

Hi,
Quick question ....we are applying for our mortgage in January as this is when we will have our deposit. We have a loan with Zopa 15% over 2 years (6000 left to pay) I took it out over a 2 year period with payments around 340 each month. I do over pay each month to a total of 400. The loan is due to be paid by May 2020.
My question is having to pay out 400 a month will likely affect our affordability in the eyes of the mortgage providers. I have an option to apply for a new loan at a much lower Apr (3.4%) and over a longer period (4years). This would take monthly payments down to 135 a month.
My concern is whether applying for a new loan, to pay off the other one will have more of an adverse effect of eligibility for a mortgage than paying out more each month which ultimately effects our affordability.....

Any thoughts ...... Thanks in advance

Thrugelmir

Why not clear the loan first, using your savings.

Are you FTB's?

csgohan4

any debt/loan will impact on affordability, use the calculators from some of the major banks to see what impact they will have

Covering a loan with another loan is just kicking the can down the road, pay it off if you can

ACG

It will affect affordability, but whether that is a problem or not is another matter.

For example, lets say your combined incomes are £50,000 and you can lend 4.5x income - £250,000. A £135 a month loan may bring that down to say £245,000.

A £400 a month loan may bring that down to say £210,000.

If you want a Mortgage of £200,000 it makes no odds.
If you want a Mortgage of £230,000 then it does.

(all figures just for example only).

Bakerfrog

Just to add some clarity.....we need to have our deposit for January and be applying for a mortgage in January as we are currently lodging with a friend. We only have until March and then he is selling his house so we have to move out. Using our deposit money to pay off the loan is not an option.
My question is what is the best choice ....to affect affordability or eligibility????

lewishardwick

Speak to a mortgage broker. They'll be able to advise you how lenders rate outstanding debts.