Pay off debts before mortgage?!?!?

MORPH3US

Myself and my girlfriend have just recently moved out from our parents house and are now renting a flat for 6 months until we get on our feet.

We want to try and buy a house because we know that renting is money down the drain and also the sooner we get on the ladder, the sooner we'll have that mortgage paid off.

The quandry that we have is:

We think that we can save £500 a month each, but what do we do with it.

We both have a £5000 loan over 5 years which we now owe £4000 of paying about £100 a month each.

Should we use the £500 each that we save a month to pay off the loan as soon as possible (to save on some interest), or just keep paying the £100 a month each and then save the rest towards a deposit?

What would work better for us, getting a 100% mortgage being debt free, or getting a 95% mortgage but having about £3000 each in loans over us?

Any advice?

Thanks

M

frepol

How much interest are you charging the bank in your savings account?

How much interest is the bank charging you on your loan? (Providing that you are charged daily interest)

Don't forget that the amount of any debts will be deducted from the amount that you can borrow. However, having a reasonable deposit may also secure you a better deal.

If you have a specific lender in mind, why don't you ask them?

Thefunkygibbons

Not straight forward

What is the interest rate on the loan

If it is high, then you could save lots of money getting it out of the way

However, it would be very useful to have a deposit when buying and some cash to pay for moving fees, solicitors, stamp duty etc

However, at 95% or 100%, you will still be paying for an insurance policy to cover the leader in case of default and such policies are expensive money down the drain

In order to get on a better footing, is it possible to really save and get over a 10% deposit, as this would make getting the mortgage easier

meanmachine_2

"renting is money down the drain".

Jeez. You people are like robots.

How is renting down the drain if it's allowing you to save £500 a month?

While prices are falling, and according to Hometrack they fell again in August, BUYING is money down the drain.

Isn't it obvious?

Sheesh. I give up.

martinpike

meanmachine wrote:

Sheesh. I give up.

Feel free.

Richie(UK)

meanmachine wrote:

"renting is money down the drain".

Jeez. You people are like robots.

How is renting down the drain if it's allowing you to save £500 a month?

While prices are falling, and according to Hometrack they fell again in August, BUYING is money down the drain.

Isn't it obvious?

Sheesh. I give up.

No it isn't obvious. So before you give up would you humour me and explain your rationale?

As I see it, if you want a particular standard of house then you will pay more in rent than you will to acquire the house using a mortgage because the landlord will wish to cover his own mortgage costs AND make a profit on top. After 25 years of renting you have nothing. After 25 years of financing a purchase you have a house (regardless of what final value it has).

I must be missing something.

martinpike

It all depends how desperate you are to stop renting and to buy a place.

In an ideal world you'd concentrate on getting the loans paid off first, assuming you can do that penalty free. Then you'd start whacking your money into a cash isa each until they are maxed out. Then whack the money into the highest interest savings account you can find. This would stack up quite quickly as you wouldn't have the loan repayments any more.

In reality, I suspect you may be better tackling everything simultaneously. Open up an ISA each, and stick £250 each a month into that, and also overpay your loans.

That way, if you find a property you like, you will at least have some deposit saved up, and if it takes longer, you'll hopefully have the loans paid off and a bigger deposit.

In general, if you have 5% deposit, you will be spared the most punitive of the charges that go with high risk mortgages, but this depends on each company.

Cheers.

MORPH3US

meanmachine wrote:

"renting is money down the drain".

Jeez. You people are like robots.

How is renting down the drain if it's allowing you to save £500 a month?

While prices are falling, and according to Hometrack they fell again in August, BUYING is money down the drain.

Isn't it obvious?

Sheesh. I give up.

Ha ha ha, PMSL @ martinpike

@mean machine:

Current rent = £360 / month * 12 months = £4320 / year.

Now what would I rather do (rhetorical question btw) pay £4320a year and in 10 years time have NOTHING or buy a house and in 10 years time have 1/3 OF A HOUSE which WILL have gone up in value.

Just so you don't get confused with that:

NOTHING or 1/3 of a house (i.e. £40,000)??!?!?

Anyway back to the original subject:

Our loans were both £5000 over 5 years @ about 6.7%. So over the 5 years it works out that we both end up paying back about £5800

Now if we pay it back early then they recalculate it to the amount of years that we have actually borrowed it over so we would end up paying less.

However if we pay that back then it will take about 8 months and then we would have to take a larger mortgage out or rent for even longer before we could manage to save a deposit!!

Q: Do they take student loans into account when they calculate how much you can borrow? If they do then i'm done for!!!

Q2: Is payment protection (or illness / redundancy insurance - whatever they call it) required or optional? One of the calculators I looked at the other day had it as £100 a month (£22,500 over 25 years) which seems like money down the drain to me!!!

Q3: Are the online "how much can I borrow" calculators acurate? Myself and the g/f both earn £18k a year, both in mid 20's with about £4k loan each and calculators say we could have between £108,000 and £118,000!!

Thanks again

M

M

martinpike

1. No idea whether student loans are taken into account. Actually, I'm sure they will be, but they'll get a special treatment of some sort.

2. Those insurances are optional. Or if they aren't, walk away from the deal.

3. Depends which calculators. If you mean the ones on the banks/building societies own websites, I'm sure they are reasonably accurate. But as graduates (I assume), the branch advisers will be able to use their discretion.


Very simply, I'd go and talk to a couple of banks or building societies and see what they say. If you go in now and explain your plans, when you go back in 6 months or a year, they'll be able to see that you've stuck to them.

On that note, it might be worth you and your girlfriend opening isa's at different places...

ManAtHome

MORPH3US wrote:

Now what would I rather do (rhetorical question btw) pay £4320a year and in 10 years time have NOTHING or buy a house and in 10 years time have 1/3 OF A HOUSE which WILL have gone up in value.

mmmm - well assuming you can't get a 0% loan, you may have to pay a bit of interest, probably about the same as your rent in fact (best deal on £100k mortgage). So in 10 years time, you really have the option to purchase at todays price (although not really an option to decline). Just my 2d...

martinpike

Sure, the housing market fluctuates. I don't pretend to understand all of the factors that go into that.

There's only two things I know for certain. First, the little island we live on ain't getting any bigger, and land will become more and more hard to come by.

Second, 'families' are becoming less nuclear, and more people are living alone.

Ergo, in the long term, within a democracy, house prices can only go up.

But all that counts for nothing against the desire for a person to have something they can call their own, take pride in, control, and make a home for their family.

I for one can't put a price on that.

I'll stop preaching now.

:beer: