Should I use savings or add to mortgage?

seh567

Hi

I need to borrow £5k to assist a family member and am not sure whether to borrow on my mortgage or use my savings.

I have a small flexible mortgage with Nationwide, currently owing £2.2k which is due to end in August next year. Over the years I have overpaid so I have credit of £20k which I can draw down without penalty. They have said I can borrow the extra £5k paying £225 per month over 36 months which equates to approximately £750 interest.

I have £18k savings in an ISA paying 6% interest.

I am now retired and don't really want to deplete my savings so I am gearing towards borrowing on my mortgage re above but I am not sure this is the right thing to do.

Any advice would be appreciated.

lynnexxxo

Can you afford to pay the £225 per month?

Would the family member be paying it back? If so you could suggest they pay the interest too.

I might be wrong but I work out your lost interest :

Year 1 -5000 * 106% = 5300
Year 2 5300 * 106% = 5618
Year 3 5618 * 106% = 5995

Thus your 'lost' interest over three years would be £995. So the loan is cheaper assuming you can afford the repayments

0james0

Almost always your money is better off in your mortgage than in your savings due to the fact the interest rate you pay to borrow the money will be higher than the rate of return, after tax on your savings.

Depends on your rate with Nationwide

I'm sure there is a thread around here about that somewhere?