Best way to reduce interest payments on £12,000 please?

Tinfish

Hi Folks,

I have a friend who has only £13,000 left to pay on her mortgage but is paying Halifax nearly £800 per year interest on this sum (at 5.75%).
(Its an interest only mortgage. No Endowment).

I told her I'd post a question on 'martins' famous website forum for suggestions on how to reduce interest payments.

Obviously she doesent want to pay off the entire mortgage ahead of schedule as she'll be penalised. But she would naturally like to get interest payments reduced as far as pos.

Would interest free credit card borrowing - of say £10,000 - be feasible in this case to reduce her interest payments, and if so, what would be the best strategy?

All suggestions welcome.

Thanks.

Tin
Lancs.

jrh2254

Sounds a little risky to me as what happens at the end of the 0% interest free period and they can't get another interest free credit card deal. They have £10k of debt on a credit card rather than on a mortgage!
Of course you could take the risk of always being able to get the 0% deals but personally I would not.
I would look for the cheapest variable rate deal (with no up front fees) and pay off as much as they can afford each month. They are unfortunately in the position where the outstanding mortgage is too low (and hence interest) to warrant paying the exorbitant fees on the cheapest remortgage deals.

jobbingmusician

I'm not the most experienced person here, but have some quick suggestions.

1. Find out from Halifax what happens about overpayments - some mortgage companies credit these only annually :eek: I think, so you want to make sure what happens if she DOES use these.

2. The ideal arrangement would be to borrow £11,999 on interest free credit cards (or as close to £12k as Halifax will allow without early repayment penalties) and throw this at the mortgage. However, getting CASH out of CC seems to be difficult - other people on this site will have better ideas than I about this. Assuming she can't do this but can get some interest free cards, she should spend on the cards rather than out of her salary, and either put the money saved into the mortgage (if they credit overpayments immediately) or put it in a high interest account and transfer it and the interest to the mortgage account just before the accounting date when they DO credit overpayments to the account. (Hmmm. This sort of assumes she'll have the money to repay the CC when the eventual day of reckoning comes. With such a tiny amount I am assuming she'll prob be able to pay off in 2 years - I think she should be able to spin out interest free payments at least as long as that, but be careful!)

3. Keep an eye open for other mortgage companies offering 'no arrangement, free legal fees' deals and do the sums to make sure it isn't cheaper to swap companies even with the redemption fee. It probably isn't, on such a small sum, but best to be sure. And if you DO find a deal that saves you even a few pennies, ring the Halifax, tell them you've found a cheaper deal, and start negotiating!

4. Ditto for personal loans, of course! The Sunday (could be Sat?) Telegraph, and other papers, do 'cheapest loans' and 'cheapest mortgages' tables - worth ringing round.....

Good luck, do let us know what she decides!

Ian_W

Tinfish wrote: Obviously she doesent want to pay off the entire mortgage ahead of schedule as she'll be penalised.

Are you sure about this? Some deals do have ERC's [early repayment charges] but usually come with a better interest rate than your friend is paying so I'd check what the penalties are.

With a £13K mortgage most or at least many lenders won't be interested - £25/30K min for many. Nationwide [I'm sure there must be others but I don't know which] will do but there are fees involved which with such a small mortgage might outweigh the saving in moving to a cheaper interest rate so it may not be worth moving anyway. For example, if she took out their 5yr fixed at 4.79% she'd save about £125pa in interest but with NW fees of £300 [free legals & valuation] and some fee from Halifax to transfer it's doubtful she'd save much at all - even dropping a whole 1% in the rate.

She could see if Halifax will do her a better rate - probably favourite, try the credit card route if she's comfy with that or borrow the money on an unsecured loan [Cahoot at 5.6% beats her mortgage - HERE ] which would also repay her loan and leave her property mortgage free.

HTH.

Tinfish

Hey, thanks for these useful responses folks. I'll pass them on to my friend and see if we can save her some money. I'll let you know if we get anywhere.

Apologies for responding so late to your replies, but I only just received a Martin's email newletter, then I remembered I'd posted a message on this forum a while back and forgot to check the responses.

Thanks again -

Tin