OT (of course) : Money in the bank vs maintaining loans etc

Yes, I'm still alive.

Seeking a general opinion on a situation I currently face... basically
I have a not-unsubstantial amount of cash currently sitting in an
account.

I need to buy a house, though I believe I actually only need approx.
50% of what I have to qualify for pretty much any mortgage I want
(other complications like income not withstanding - basically I would
need approx 50% of the amount I have for the required deposit).

I also happen to have a few outstanding loans that I am tempted to pay
off.

Comparing the amounts I'd save monthly between paying off outstanding
debt vs chucking in larger deposit in house, it all looks, in the short
term, much better to pay off other debts and go for smaller deposit
with idea to chuck extra monthly income back into mortgage (especially
if I can get another flexible-type one). Does this sound reasonable?

What am I missing?

One thing is the long term interest paid, obviously - though my brain
hurts when trying to work out what mortgage vs loan interest would
total over x years. Basically I'm doing a slightly short sighted view
and looking at my margins in terms of spare cash at the end of the
month NOW rather than shaving 2 years off the mortgage IYSWIM.

The left field option is a brace of GSX-R's, however that one's not
seriously on the radar right now

 

some low rate fixed mortgages do not allow extra payments during the term
just watch for that

 

Assuming the mortgage rate has a lower APR than the other debts, yes.

 

Yes - assuming the loan interest rates are somewhat higher than the
mortgage rate will be.

--
Krusty
www.MuddyStuff.co.uk
Off-Road Classifieds

'02 MV Senna '03 Tiger 955i '96 Tiger '79 Fantic Hiro 250

 

dwb wrote:

Nothing much. Watch out for products with early repayment charges,
depending on the amount you want to repay etc etc.

As far as long term interest payments go, I'd recommend this :

Walk into whatever bank, pick a product (mortgage) like the one you
want, over the period of the one you want and then ask them for a Key
Facts Illustration (KFI) for that product with each deposit. They
should be able to produce these for you quickly (like 5 mins) and
easily.

Section 5 of this document should have a figure for total amount paid
back and section 6 should cover the monthly payments.

Clearly a better choice.

 

VirginOne account.

 

I had exactly the same choice when buying this current house and opted
for the "clear the debts and put the extra monthly income into
mortgage".

Once I'd removed the debts it meant I had around 500 quid extra a
month to play with. I added this amount to the monthly repayment I
had already decided I could afford if I didn't pay back the debts. In
reality it meant I could borrow about another 70 grand. So that 400
quid has gone from borrowing 10 grand to being able to borrow 70.

So it's turned out that I've been able to buy a much better house,
clear all my other debts, had a total monthly payment for the mortgage
I'm happy with, ended with a nice lump sum in the bank for
re-decorating the house, and oddly, ended up with more disposable
income at the end of the month. Though I'm not quite sure how that's
happened.

I didn't bother with that, and just dealt with the borrowing power of
the money I had and where it could be put to allow me to borrow the
most.

 

Nothing. As others have said if the interest rates are higher on the
loans than the mortgage (and they almost certainly will be) then kill
off the highest rated debt then the next etc, etc. This is the advice
that is consistently given on all of the "financial makeover" programmes
and in any decent book on personal finance (I like the ones by Alvin
Hall).

 

Fair comment. I can't think of a loan I've ever had that had such
restrictions but I imagine the "loan product range" is much more complex
these days.

 

You'll find it all here if you have a dig ...

http://www.moneysavingexpert.com/

 

Personally, I'd pay off any loans / credit cards / finance agreements
first. It's a great feeling knowing that your only debt is the mortgage.

Are you actually allowed to buy out there? - I thought you had to live
there for x number of years before you were allowed to buy property.

 

That would be Jersey.

Guernsey is even more draconian for non-locals.

Handily my S/O is a local, so this doesn't apply and we can buy what we
want.

 

Cool.

Won't you have to get married to put it in joint names, though?

How are you finding it out there, btw? - I was over there not long ago,
but, unfortunately (or fortunately for you....) was on the 'wrong'
island.

 

You don't need to be married to have a mortgage in joint names, and
you just have a solicitor draw up a document detailing how much each
person owns.

 

Oh, I know that.

I'm thinking more of the overly-restrictive rules regarding outsiders on
Guernsey.

 

Ah, no probs.

 

The interest rate on the Virgin 1 account is *abysmal*. I really like
the idea but until they charge a decent rate it's just not an option
for clued up mortgage hunter unless you are likely to have the entire
value of your mortgage sitting in your current account much of the time.

 

....but a normal mortgage will let you do just that. I treat my mortgage
as a savings account as do countless others. You can pay in and take
out of the better 'modern' mortgages at will.

 

Totally right.

1.5% more last time I looked. £150 a year per 10k of borrowing. For
many a brand new bike every five years.

They're a con.

 

People obviously have larger mortgages than I imagined.