Use 0% Credit Card to Over Pay

Hi there,
Need a little help with this idea.
Want to pay off Mortgage as soon as I can. Good chance I will be made redundant in 2 years time.

Mortgage £22,600 with Halifax at approx 6%
13 yrs left.

Credit Cards £11,000 at 0%

Savings £17,000 at 3.6% net---- £11,000 of this is for the credit cards!

ISA £3000 A&L --- This year’s allowance

I am over paying Mortgage by £215 pm--- Should pay Mortgage off in 5 years.
Mortgage is variable and can take money out.

Was thinking of paying £11,000 off Mortgage from my savings,in effect using credit card money and hopefully keep the 0% credit cards running.
Would it make big difference paying off £11K or is it not worth it.

Annual income £30K

Replies

  • RichyRichRichyRich Forumite
    2.1K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
    Forumite
    Your problem would come if you could not find another 0% credit card, and you would be forced to pay credit card interest rates, though if you can draw money off your mortgage this would not be too much of a problem provided you could get the money in time. Remember though that this might offset any benefit you would have received.

    Also remember if you're made redundant it might mean that you can't apply for 0% credit.

    Rich
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
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  • $17mma$17mma Forumite
    2.6K Posts
    rugrat400 wrote:
    Hi there,
    Need a little help with this idea.
    Want to pay off Mortgage as soon as I can. Good chance I will be made redundant in 2 years time.

    Mortgage £22,600 with Halifax at approx 6%
    13 yrs left.

    Credit Cards £11,000 at 0%

    Savings £17,000 at 3.6% net---- £11,000 of this is for the credit cards!

    ISA £3000 A&L --- This year’s allowance

    I am over paying Mortgage by £215 pm--- Should pay Mortgage off in 5 years.
    Mortgage is variable and can take money out.

    Was thinking of paying £11,000 off Mortgage from my savings,in effect using credit card money and hopefully keep the 0% credit cards running.
    Would it make big difference paying off £11K or is it not worth it.

    Annual income £30K

    good idea rugrat...sorry cant help with your question but this has given me an idea to pay off our mortgage early too.:T
    All it takes for evil to succeed is for a good man to do nothing!
  • tomsticklandtomstickland Forumite
    19.5K Posts
    10,000 Posts Combo Breaker
    Well, I'd stick the £6K of real money from the 3.6% savings account straight onto the mortgage. No point in earning 3.6% on £5K whilst you're paying 5% or whatever on £5K of the morgage.

    Meanwhile, you could just put the £11K into a 5.15% ICICI (4.something%) after tax, or use a 10% regular saver, fed from a 5.15% savings account (giving an effective rate on £3K of around 6% after tax).

    If your mortgage allows overpayments and underpayments in the future then you could overpay with the free money and then withdraw it later by underpaying.
    Otherwise just stooze the free money in a high interest account and overpay using the interest, so you always have the money to pay back the credit cards at any time.
    Happy chappy
  • jamesdjamesd Forumite
    25.8K Posts
    Part of the Furniture 10,000 Posts Name Dropper
    You probably can't get it done, but it's close enough to consider.

    Here's a quick summary of your current payments:
    22600 borrowed for 13 years at 6% with 215 overpay
    original total to pay 32602, new total 26348 term 5.2 years saved 6253
    original installment 209 new installment 424
    (figures from the Bradford and Bingley flexible mortgage calculator at http://www.bradford-bingley.co.uk/mortgages/calc/flexcalc.asp )

    This leaves you with a mortgage of about 14500 two years from now (very approximate!), 17000 in savings, 3000 in ISA and 11000 in credit card debt. To end up all square (no mortgage, credit debt, savings or ISA) you're short by 5500, call it 230 a month for a total monthly mortgage payment and savings needed of 654. That 654 reduces your mortgage faster and feeding that back into the mortgage calculation reduces the monthly total needed to about 647 because of the saved interest.

    Lets assume that you put 11000 to pay the mortgage. That leaves 11600 to pay and at 424 a month is paid off in 30 months - 6 longer than your two year target. Leaves you with 6000 savings and 3000 ISA and 11000 in credit card debt so you need to get another 2000 somehow. To get the mortgage paid in 2 years you'd need to raise the monthly payment to about 508. You'd also need to be saving 84 more a month to pay off the remaining credit card debt. Now at 592 a month. That reduces the mortgage faster and saves some interest and feeding that back into the mortgage calculation reduces the monthly total needed to 587. So 587 a month to end up unemployed with no savings, ISA or credit card debt.

    Lets assume that you put 17000 to pay the mortgage. That leaves 5600 to pay and at 424 a month that is paid off in 13-14 months. If you save the mortgage payments for another 10 months until two year redundancy you'll have 4240 in savings plus the 3000 ISA with 11000 in credit card debt. You need an extra 157 a month to do that for total monthly savings and mortgage payments of 581. A couple of pounds less after accounting for reduced mortgage interest.

    Lets assume that you put 20000 to pay the mortgage - all the savings including ISA. That leaves 2600 to pay and at 424 a month that is paid off in 6.3 months, call it 7, with about 78 of interest paid during that time. For the remaining 17 months until redundancy the 424 a month if saved gives you 7208 plus 171 in interest at 4.75%, for a total of 7380. Still not enough for the 11000 you need to pay off the cards, but getting there. For the two years you would need to be paying and saving about 565 a month to get it done. Probably a better idea to get the mortgage payment adjusted to 108 a month so you still have the flex capability to withdraw money to pay the credit cards during the full two years - costs 7 a month more for a total monthly payment needed of 572. A couple of pounds less after accounting for reduced mortgage interest.

    So to reach your two year target:

    What you're doing now: you need 647 a month total
    11000 to mortgate: you need 587 a month total
    17000 to mortgage: you need 581 a month total
    20000 to mortgage: you need 572 a month total (or 565 with less safety)

    You can see the difference putting the money into the mortgage makes.

    It looks as though you could just manage to get the mortgage paid and end up unemployed with no mortgage, savings, ISA or credit card debt if you're able to find another 150 a month. Numbers are approximate - I suggest 50 a month extra in savings to cover that.
  • KatgoddessKatgoddess Forumite
    1.8K Posts
    Part of the Furniture 1,000 Posts
    I know someone with a Woolwich openplan mortgage who uses stoozing money to offset the mortgage. i.e. the 10k she has borrowed at 0% from credit cards goes into a savings pot and while its in there its like the mortgage has been reduced by 10k and you don't pay interest on it. Also if she runs out of interest free credit cards she can just repay straight away. Martin explains it much better than me here.

    So it might be worth playing around with the figures and seeing if you are better off moving to an offset mortgage.
  • rugrat400rugrat400 Forumite
    6 Posts
    Thank you for all the replies.
    Need to study Jamesd reply a bit more to see if I can do it.
  • jamesdjamesd Forumite
    25.8K Posts
    Part of the Furniture 10,000 Posts Name Dropper
    You should also consider insurance to cover the redundancy possibility. I'm not familiar with the terms of such insurance, nor with how certain your possible redundancy is, but it may be a better idea to rely on insurance rather than eliminating your savings. Do be sure to accurately disclose the situation with any application for insurance - having the cover declared invalid due to failure to disclose would be bad.

    If you'll have a pension, it's also an option to pay the mortgage down enough to reduce your monthly payments to a level that your income could handle.
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