will paying off my debt enable us to get a cheaper mortgage rate ?

rae2820

Hi there
so the situation is that my partner and me are looking to buy a new home together.I unfortunately have a DMP following my marriage breakup and have been paying agreed amounts since oct 2018. My partner is wondering if he were to partially settle my debt from the sale of his currant house  (currently at £26000) whether this would enable us to get a cheaper i.e a high st mortgage rate ( as opposed to a higher risk lender)or will the default be an issue for 6 years whether or not the debt is settled ? Thanks

ACG

It really depends on how everything appears on your credit report. 
If there are lots of AR markers, then probably not. If there is just one default, then potentially. 

You should get all 3 credit reports (or checkmyfile) and get them in front of a good experienced broker. 

rae2820

hi thanks for your reply-I had 4 defaults registered Oct 2018 and have been on a DMP since - I have found a broker so will speak to her.

lozenlady

It's almost never a good idea to make unsecured debt (credit cards) into secured debt (mortgage).

I would also assume if you are within a dmp that interest has been frozen, therefore you would also be making interest free debt, interest bearing.

I would recommend posting on the debt free board for more advice on this topic. 

rae2820

lozenlady said:

It's almost never a good idea to make unsecured debt (credit cards) into secured debt (mortgage).

I would also assume if you are within a dmp that interest has been frozen, therefore you would also be making interest free debt, interest bearing.

I would recommend posting on the debt free board for more advice on this topic. 

Thanks for your reply.
Sorry if my post was not clear - My partner is suggesting paying off the debt- we are not considering incorporating into a mortgage as he has savings of around £40000 and will have approx £120000 equity in his house that he is selling .
i will also post on the debt board.Best wishes

MWT

rae2820 said:

Thanks for your reply.
Sorry if my post was not clear - My partner is suggesting paying off the debt- we are not considering incorporating into a mortgage as he has savings of around £40000 and will have approx £120000 equity in his house that he is selling .

If the money was not used to pay down your debt it could be used to reduce the size of mortgage required, or if left in whatever savings vehicle it is currently in, there would be interest accruing, so there is always a cost or a lost earnings opportunity when you pay down a debt that is not accruing interest...

Good to seek further advice on the debt board...

simon_or

I have a slightly different take on 'consolidating' the debt in the OP's example.

If (it's a big if) paying off the debt from proceeds of sale helps the OP get down from a 9% specialist mortgage to a 7% one then it might be worth doing even if the much smaller DMP debt is at 0%.

And (slightly off topic) even referring to consolidating debt on to your mortgage, I used to have serious debt problems, and there are times when consolidating high interest short/medium term debt on to a relatively low interest mortgage can give you the space you need to sort yourself out and avoid defaulting on your debt or ending up bankrupt. It helped me massively and allowed me to bring my finances back on track and repair my credit history with time. If I didn't have that option I'm pretty sure I'd have ended up bankrupt and out of a job.

It's all well and good to say that debt consolidation and securing unsecured debt is never the answer but sometimes it is what you need to pull yourself out of trouble or allow you time to take stock and change your behaviour.

rae2820

MWT said:

rae2820 said:

Thanks for your reply.
Sorry if my post was not clear - My partner is suggesting paying off the debt- we are not considering incorporating into a mortgage as he has savings of around £40000 and will have approx £120000 equity in his house that he is selling .

If the money was not used to pay down your debt it could be used to reduce the size of mortgage required, or if left in whatever savings vehicle it is currently in, there would be interest accruing, so there is always a cost or a lost earnings opportunity when you pay down a debt that is not accruing interest...

Good to seek further advice on the debt board...

Thanks appreciate your thoughts-a cost benefit analysis is required ! Reading on some of the boards PRA in particular are not keen to accept F& F settlements in any case