Lump Sum - Clear debt or mortgage savings?

Cork2015!

If somebody had approx 30k of debt and was starting to save for a house....

Lump sum of 20k received

Should that person:
1 - Clear 20k of debt then continue to clear rest of debt while saving OR
2 - Save the 20k and continue to clear debt while saving

elperello

Assuming you are paying interest on the debt pay off the 20k.

Gael23

Option 1. That will be much more favorable to a mortgage application. Keep the payments the same and get rid of the loan quicker

Mech1

Could you make a offer of 20k to fully clear the 30k?

Taxburden carrier

That’d look well on a mortgage application ��

advertsfox

That debt is the first thing the mortgage will see and want gone, pay it off because you aren't up 20K right now... you are still down 10K.

The banks will definitely appreciate this because when they calculate what you can afford, that loan repayment goes against your max per month available income. Might be worth asking the vendor to agree to a longer term if possible (after paying that 20K). 10K is still a good bit of paying to do so depending on how much you pay and for how long (e.g €500 a month for 5 years), it might be better with a lower amount while you save for a home.

antix80

In many cases it makes sense to repay a loan over saving, but not necessarily. Banks take your disposable income into account.. so your salary less outgoings and that will include loan repayments. It's possible to take out a mortgage while repaying a loan.

Don't forget you'll need a deposit to buy a house, and banks can only lend 90% to first time buyers. You'll also have legal expenses to pay. So don't leave yourself short on cash.

antix80

Mech1 wrote: »

Could you make a offer of 20k to fully clear the 30k?

That would look great on the op's credit record for taking out a mortgage. 10k write-off. You'd have to wait 6 years before a bank will give you another loan.

Amirani

Do you have any other savings? If not put a couple of months expenses into an emergency fund and then pay the rest off the debt.

Don't leave the 20k sitting in a savings account and don't go looking for any debt writedowns.

pwurple

What is the interest rate on the debt?

Literally no point in saving until debt is paid off if it is a higher interest rate than the savings account.

Mech1

antix80 wrote: »

That would look great on the op's credit record for taking out a mortgage. 10k write-off. You'd have to wait 6 years before a bank will give you another loan.

Op didnt specify how long they would be saving for, could easy be another 10 years. And could involve another persons "clean record" applying alongside.