Using home equity to pay off loans before re-mortgaging?

laseyman

What are peoples opinions on paying off a 10k 500/month repayment loan (saving 230 for paying early) with equity from a house sale in order to have a better chance of re-applying for a larger mortgage amount (affordability being increased as I'm not paying the 500/month)

lets assume it didn't affect the deposit amount in any significant way but I would have to borrow that 10k again in the re-mortgage.

also for arguments sake, lets say the current mortgage amount is considered affordable even with the repayments, but if I had the 500/month spare, what new opportunities would i expect to see laid before me?

answers on a postcard please, cheers in advance

foxy-stoat

Nothing wrong with the mechanics of that - its reducing the monthly outgoings but you will end up paying more over the length of the mortgage (assuming its at least 5 years) so I would over pay the mortgage for 5 years by the amount you save per month.

I also wouldnt take out any further borrowings for 5 years and live within your means.

Thrugelmir

laseyman wrote: »

answers on a postcard please, cheers in advance

You didn't provide an address.

Are you selling and buying concurrently? Or is there a gap inbetween.

laseyman

foxy-stoat wrote: »

Nothing wrong with the mechanics of that - its reducing the monthly outgoings but you will end up paying more over the length of the mortgage (assuming its at least 5 years) so I would over pay the mortgage for 5 years by the amount you save per month.

I also wouldnt take out any further borrowings for 5 years and live within your means.

that's a good way of looking at it, didn't think about overpaying... I was more concerned about how it would affect my eligibility for the mortgage as a whole, would it be a large factor or not do you know?

foxy-stoat

Depends on the LTV numbers - what will they be with and without the consolidation.

laseyman

Thrugelmir wrote: »

You didn't provide an address.

Are you selling and buying concurrently? Or is there a gap inbetween.

If it's destiny the postcard will find me wherever I am.

Yes, in this 'theory' there would be a gap between paying off the debt and remortgaging at least, whether the actual move happens concurrently I don't know, I'm assuming using 10k of extra capital that would have gone into increase the deposit being the money that would be used to clear the loan and therefore need to be borrowed again.
also, thinking about overpaying, this 10k would be paid back quick, so don't worry about calculating the interest over 30years versus the capital and house price increase decrease conundrum we could end up in.

laseyman

foxy-stoat wrote: »

Depends on the LTV numbers - what will they be with and without the consolidation.

sorry I had to google LTV numbers... call it 70% before and 73% after??

is that what you mean?

Thrugelmir

laseyman wrote: »

Yes, in this 'theory' there would be a gap between paying off the debt and remortgaging at least, whether the actual move happens concurrently I don't know, I'm assuming using 10k of extra capital that would have gone into increase the deposit being the money that would be used to clear the loan and therefore need to be borrowed again.
also, thinking about overpaying, this 10k would be paid back quick, so don't worry about calculating the interest over 30years versus the capital and house price increase decrease conundrum we could end up in.

Might as well pay off the debt if that's the case. Then borrow what's required to fund the purchase. Just ensure that it's not used as an easy way out. Too easy to make excuses and let matters drift. Which could cost you far more in the longer term.

laseyman

Thrugelmir wrote: »

Might as well pay off the debt if that's the case. Then borrow what's required to fund the purchase. Just ensure that it's not used as an easy way out. Too easy to make excuses and let matters drift. Which could cost you far more in the longer term.

great, thanks, so the action is sound, back to the original angle that I really have no quantifiable knowledge on... affordability... does anyone know or is there a guage to how 500 extra/month in the pocket would affect a mortgage application (only based on less spending, not extra income)

All been super helpful on here already should have joined a long time ago

Thrugelmir

Try some lenders online mortgage calculators to gauge the impact of with/without the loan on what they'll possibly advance you.