which is best for me?

marcus430390

I am buying a home for £170,000 and have £150,000 already. I need to borrow £20000 and wondered if anyone Knew the best method to do this? Either to get a loan or a mortgage? I Will be quite stretched so will only want to pay about £300 per month.

Any ideas or help would be very much appreciated.

Many thanks

Marcus

a_j_bingham

Mortgages typically have lower interest rates than personal loans, as a mortgage is secured against the property.

Remember, you may need to borrow more money than you have anticipated, to cover incidental expenses, such as legal fees, valuation fees, stamp duty etc.

Check out the following website -
http://www.moneyfacts.co.uk/menus/main/menu_mortgages.htm

The Mortgage Repayment Calculator is particularly useful for determining how much money you want to borrow, over what time period, and at what interest rate.

You can find example interest rates under the Mortgage Best Buys section.

It's also worth calculating if you'll still be able to make the repayments if interest rates go up, so try entering a higher interest rate to see what the repayments would increase to.

Regards,
Andrew.

DavidHM

At ~£300/month you're going to take 6 or 7 years to pay back the loan, depending on whether your payments are just under or just over the threshold.

Which is better for you will depend firstly on your income - with a £150k deposit and no debts, just about anyone in employment could get a £20k mortgage at some APR, but not everyone could get a personal loan.

Also, a decision for a personal loan may be assessed based on a use criterion and whilst "car" or "new kitchen" may be more risky than buying the property itself, the lender may have an "other" option which could include both the house purchase and something frivolous like a holiday.

And then of course you need to look at the mortgage rate you're offered - if you can get a lower APR with the mortgage then by all means go for it. Of course the mortgage may require that you take out some insurance, either through the lender or a third party, that you simply don't want: again you have to look into that.

Finally, consider fees and early redemption penalties. Up front, a personal loan won't require a survey or valuation although you might be wise to get these done for your own reasons. There'll be no front loaded arrangement fee either. With inflation and promotion down the line, you might want to increase payments. It's likely to be much cheaper to pay off a personal loan early, too.

The difference in price between the best personal loan and the best mortgage is £4 a month - if you qualify. That amounts to £288 over seven years. If there are arrangement fees that come to more than that, or the risk of any likely early repayment fees or the fact that you would grant security for the £20k loan is worth more than £288 to you, then I'd go for the personal loan if it's available. If neither of those applies, I'd go for the mortgage.