Best option to for larger mortgage in two years

DohCupChaa

Hi

I'm currently on a helptobuy and would like to buy out the remainder of the equity loan and get a full mortgage in the next two years when my fixed term is up.

I currently also have about 8k credit card balance on 0% deals and 30k in personal loans. I have about £500/month to use towards overpayments and I feel I have probably four options. and would like some opinions on what would be more beneficial when trying to get a larger mortgage in 2 years time.

1. Save the money in a savings account as a reserve pot.
2. Overpay the credit cards and pay off earlier.
3. Overpay the loans and try to reduce the balance
4. Overpay mortgage (staying within overpayment charge limits)

ideas? help?

foxy-stoat

You should be overpaying the highest interest debt first by as much as you can.

Depending on your current salary - you may or may not get an increase in mortgage borrowing due to your unsecured debt.

Did you have this amount of debt when you took out the H2B mortgage and equity loan?

DohCupChaa

In a normal scenario, yes I would focus on highest interest first, but as the focus is now bigger mortgage, I wasn't sure if that would still be the best approach. i.e should I plan to have more cash to hand, less other debt or a higher proportion of equity?

I had slightly higher debt when taking out the H2B originally, so has improved a bit since then, but not enough to get the full amount yet.

[Deleted User]

If we are talking purely from a mortgage point of view:

Credit card debt is taken as 3% of the outstanding balance regardless of how much you actually pay.
Loan debt is taken as the monthly payment regardless of the balance

So if you want to increase your borrowing amount but wont be clearing the whole loan then the logic would say to repay the credit card debt as much as possible. Just stick your numbers in to a few lender calculators and see what you get.


If we are giving actual advice on getting debt free then yes, clear the one with highest rate and snowball once you have cleared the first debt

getmore4less

What LTV will you be going to if you try to get the mortgage to cover the H2B.

How big is the H2B(initial and current based on valuations)

That will probably be at a higher rate than now depending how long you fixed initially.

DohCupChaa

Good idea on the CC repayment.

LTV will probably be 6-7% i suspect. Original was 40% HTB on 406k with 5% deposit and I've been going for 2 years now. As a new build I think value has dropped a little (5% ish?) for now so equity loan will also be depressed a little.

Sounds like general consensus is pay off debt than focus on savings or building equity?

getmore4less

What rate are you paying now?

Look at what rate you will pay if you add the H2B.

Will it be more than £500pm more than you are paying now?

Your mortgage won't be much lower and £500pm won't touch much of the £160k HTB debt.

DohCupChaa

Hadn't thought of that angle tbh.

I'm @ 1.2% now with a 60% LTV + HTB, but would be more like 95% if buying out, so the rate def wont be as good.
So in general I could build equity quicker by not buying out the HTB (lower rate), but that would depend on prices staying depressed and equity loan not eating into my share of value increase if I wait and prop prices go up later.

Too many variables!

[Deleted User]

You've also got to consider the fact that not many lenders will allow you to remortgage up to 95% to repay your help to buy. And even if they did a lot have loan caps at that LTV that wouldnt be enough to make it work,

For example, Bank of Ireland will only go up to 90% ltv for a remortgage, but will only go to 85% if looking to buy out help to buy.

So even if you could get your affordability up, there may not be a lender who can support just due the size of the loan and the ltv you are trying to get to


What was the exit strategy when you took on the help to buy? Did you do it through a broker?

DohCupChaa

Exit strategy wasn't hugely discussed. It was a broker recommended by the developer but I had primarily planned on moving onto a house come the end of 5 years. Either selling this property or remortgaging under a buy-to-let.

All of this makes me think I should still just focus on debt clearance and maybe staircase the HTB.