Debts with a mortgage

[LosingGrip]

I’ve currently got a interest free credit card that I used when we first moved in for things around the flat.

I’ve also got another interest free loan for an iPhone with another year left.

And lastly I’ve got a loan of £12,000 taken out recently.

I’m trying to work out what would be best when coming to remortgage at the end of the year.

Do I pay off the interest free credit card and loan early or pay the extra on reducing my loan?

I’m leaning towards paying the loan as it seems silly paying off the interest free ones sooner when it’s interest free!

[Caddyshack]

Do you mean how will it affect affordability or raising money to pay them off?

Mortgage lenders will assume something like 3% of the card balance as a monthly commitment. They will be interested in the loan monthly payment more than the balance.

Credit card debts tend to have smaller payments and higher cost of credit in the long term. Some interest free cards have large transfer costs and high monthly spend interest.

Pay off the one with the highest overall cost of keeping.

If you are just worried about affordability then consider rate swap deals within the current lender but ideally consult a broker.

[LosingGrip]

Yeah looking at what would be best to reduce in terms of affordability.

[Defcon5]

I think the primary factor in affordability is how much the combined monthly payments are.

Whatever you can do to make them the lowest will be best for affordability, but not necessarily the best from a total cost POV.

[Caddyshack]

LosingGrip said:

Yeah looking at what would be best to reduce in terms of affordability.

I am finding that many affordability calcs are actually ignoring some of the credit commitments so it may not be an issue. I would recommend working with a broker as we tend to know which lenders will ignore and then compare that to what your current lender will offer.

If you plan ahead as much as possible you may not need to worry and can focus on what you want to repay etc.