0% credit to make an overpayment?

We have a flexible mortgage at 5.39 % with a balance of approx £75K and a remaining 16 years. We are able to make overpayments that affect the mortgage instantly and have a cheque book facility to withdraw funds again.
In the past we have used this when we have had a bonus at work for example. Paying in the bonus for a few months then withdrawing some or all later for a holiday etc. We keep our monthly payments the same whilst the extra funds are in the account thus reducing the capital and hopefully the term of our mortgage.

My bank have offered me a 0% credit card for 7 months with a limit of £5000. It has a transfer or cash handling fee of 2% maximum fee £50. I have no other use for a 0% rate but dont like to say no;) Is it worth using the card to transfer the funds to my current account and then pay into the mortgage or will the £50 fee outweigh any benefits? I can meet the minimum repayment amount each month and can access the £5000 from my mortgage easily.

Replies

  • EverestEverest Forumite
    65 Posts
    Based on the information you have told us, the summary of a calculation on this would be as follows:

    Starting amount borrowed @ 0% and offset against mortgage £5,000

    Yearly interest rate on mortgage - 5.39% equates to 0.44% per month

    Assuming 2.5% monthly repayment (paid from the amount borrowed rather than from salary) the interest savings would be £142.38 off your mortgage; total monthly debt capital repayments of £813.12, with £4,236.88 left to pay at the end (assuming the bank adds the balance transfer fee to the outstanding amount of the debt).

    Since the interest saving (£142.38) is nearly double the BT fee, this decision is almost a no brainer, however, the usual warnings apply: make sure you pay of the minimum each month without delay and then pay back everything at the end of the 0% term or transfer to another card. Forget these warnings and the saving will undoubtedly turn into a loss.

    Hope I have the calculations right.

    PS. The interest saving assumes only direct interest saving from having the £5,000 offset against the mortgage. To make it a little more complicated, ere we to assume that you use the interest saved each month to also offset against the mortgage then additional savings of £1.95 would also be made. Small fry but every little helps. Ahhh...the beauty of compund interest.
    There may be no I in TEAM but there's a ME if you look hard enough!
  • mrsmmrsm Forumite
    288 Posts
    thanks for that, am baffled by the maths but I thought it probably would make sense to do. (recently we have taken back some overpayments to the tune of £8000 and the monthly payment went up by £8o (although we didnt drop the payments at the time of the overpayment so are no worse off now) so i guess £5000 should have a reasonable affect on the monthly payment therefore meaning by paying the normal monthly amount we should clear a little more capital too.

    minimum payment for credit card will be paid DD so no worries there and have several reminders around the house for when I need to pay the amount off in full:T
  • EverestEverest Forumite
    65 Posts
    Go for it!!

    You definitely have the right idea!
    There may be no I in TEAM but there's a ME if you look hard enough!
  • Joe_BloggsJoe_Bloggs Forumite
    4.5K Posts
    What you are suggesting is termed a 'super balence transfer' between a mortgage account and a credit card account managed by the same lender. (Balance transfers work in the reverse direction as it is debt.) They are going to spot this and stop it unless you have another credit card that can be an innocent mule for the transfer and will not charge for balance transfers. I have done this twice with two different lenders.

    Watch out for limits on the maximum proportion allowed for a BT (Some cap at 90% ). Double check to avoid paying sneaky payment protection insurance premiums. Never purchase anything with this card. Don't assume that the initial DD will work as it takes often takes two orginisations to tango and often they have no idea what to do to make things work, in time, with each other.

    Establish an internet banking link for emergencies with all cards. Sometimes you can use your debit card over the phone for instant effect. There is an MSE stoozing forum here.
    There are detailed terms and conditions that you need to understand. What you are doing may harm your credit record even if done to perfection, at certain times, if in a remortgage cycle.

    J_B. (That is a borderline crappy mortgage rate.)
  • mrsmmrsm Forumite
    288 Posts
    thanks for the info but its not the same lender, current account and CC with Co-op, nortgage with BOS. (rate isnt brill but have just changed from almost 6% (could only swap to another with same lender as i'm on maternity leave (have been more or less since oct 03;) so dont have payslips for a new lender. Although not the best rate the flexibility of the mortgage suits as
  • Joe_BloggsJoe_Bloggs Forumite
    4.5K Posts
    What I said still applies even if your bank is not your mortgage lender. Perhaps repost on the stoozing forum.

    You can also try a slow stooze with a Sainsbury 0% purchase card. Buy essential things on this and put what you spend in a high rate savings /mortgage reduction account. Use the interest after you have paid Sainsbury back.
    J_B.
  • mrsmmrsm Forumite
    288 Posts
    thanks J_B i've posted on the other board too
This discussion has been closed.
LATEST NEWS AND DEALS