Is this a good ida using credit cheques?

torla

Need some quick advice. I have an A&L credit card and changing to mbna. I have been sent these credit cheques (3% fee charge interest free till july 2010) to use as I wish and can be transferred to my current account. I have an interest only flexible mortgage @1.49% and 22 years to term with alliance leicester current outstanding amount of £75k (£28k of which is credit available to me as it is a flexible mortgage). I have only just reduced my payment to £100 as I was made redundant but I have been offered another job so will put repayments back up again to £450 as before or £500

My proposal: pay off my outstanding credit amount, change my direct debit to minimum payments, increase my overdraft limit, borrow on maximum amount, move it to my flexible mortgage account leave there about 6 months just till before interest free offer ends, take it out again to repay back the money borrowed.

My questions: does it sound feasible? will it be worth my effort and risks to do it? what are the risks if any? the only risk i can see if Santander folds up? Can you help

torla

Can anyone also tell me how much will I save or is it better to put it in a savings account at 2.52% net interest with no withdrawal penalty and access to money at anytime?

CLAPTON

how much can you borrow using the credit card cheques?

what is you outstanding credit amount and what is it on?
change which DD?
and to what amount?
increase your OD limit to what?
and what is the APR?

torla

I can borrow up to my credit limit. This limit I have at the moment is £2500 but I can increase this, how much I don't know but I hope up to £5000. My direct debit is the full monthly payments I make towards my credit card as I always pay my bill in full. I want to change this to the min payment. Outstanding amount is approx £350. I don't pay APR as I pay my bill in full. If I borrow £5000 till July 2010 the interest is 0% So either put it towards the mortgage which will bring my mortgage outstanding balance to £75k or my savings account @2.52% for 6 months.

Thank you

Careful_ly

I think you may have misunderstood these cheques.
Although as you rightly say they are interest free, the fact that you have a fee of 3% to pay that is an interest rate of approx 4% annually. So you need to get 5% gross (for a basic rate tax payer) to just break even.

If I have understood your mortgage correctly you are paying 1.49% interest?

Then you could make the minimum payments on your mortgage and divert the balance of your monthly payments into a regular saver account, these are paying around 5%. The downside of the regualr saver accounts is that the funds are usually locked in for a year.

JimmyTheWig

Agree with Careful_ly. There's little point in paying a 3% fee to get money you can't get more than a 3% return on.

torla

Thanks guys I did not look at it that way of course. Yes I am pay 1.49% interest on my mortgage. Currently this amounts to £95 a month of interest. The way I looked at it is, I borrow £5000 at a cost of £150 (interest free and only pay min monthly on it till July 2010). This will reduce the amount owing to £70K on the mortgage and hence the monthly interest on the mortgage will decrease too. So if I still pay my £100 (even up to £500 soon) to the mortgage it means I pay more capital and hence less interest on mortgage. I guess I could save more then £150 in interest fees on the mortgage. Perhaps tis scheme will ork better when mortgage interest rates go up? I guess i am more keen to reduce the term on the mortgage

Not too keen on moving to a regular savings account where they have to be fixed, but I guess I could manage a year. What is the best current rate with regular savers?

thanks everyone - I am new to this, don't even know where the idea came from.

Careful_ly

http://forums.moneysavingexpert.com/showthread.html?t=608697
Link to excellent thread on regular savers.

As you rightly say it would cost £150 to borrow £5k, but with your very low interest mortgage you would on save approx £56 interest, so actually costing you money !!!!

CLAPTON

basically if you borrow 5,000 the you pay 3% fee i.e. 150

you will see a reduction on interest payable on your mortage of
5000 x 1.49% x 9/12 = £55 (for 9 months)

so you lose out by 150-55 =95

so no dont do it.

torla

Thanks guys, I just worked that out which I should done before. I will look at the link so I want to see which is the best way forward. This year I only used £3600 on an ISA, I also have £3000 in a saver account linked to my AL current online account which is paying 6% (10 months remaining) on the first £2500 (thats fully utilised) that's paying 2.52% net.

Cheers all

JimmyTheWig

What you are talking about is stoozing. There is quite a bit on this site about it.
As you correctly point out, with interest rates as they are at the moment getting a good return is very difficult. I don't suggest that now is the time to start doing it.