Loan to pay off mortgage - good or bad idea?

R6Nick

Hi there

I'd be grateful if you could give me your thoughts on what im thinking about doing please?

Currently I owe approx £9,000 on my mortgage which has 4 years remaining. At the end of this time I will have paid in an additional £7,000 plus there will be a shortfall of approx £7,500....total to pay £14,500.

At that point I would probably take out a loan to pay off the balance over 5 years....so total term 9 years until clear of mortgage debt. Doing some rough calculations based on a loan at 12.9%APR this would be £18,000 over 9 years.

However, if I was to take out a loan for £9,000 now over 5 years, pay off the mortgage with that, the loan would cost me approx £12,500 at the same rate of 12.9%APR. I would also be clear of debt 4 years earlier.

Am I missing something here? It seems to simple to be true. Im not sure if you can use a loan for this purpose or if there are other questions to ask before consideration...the chance of saving thousands seems worth taking but it may be too good to be true.

Your thoughts would be appreciated.

Thanks

Nick

SandC

I'm not quite following - if you have £9000 left to pay and 4 years left to go how will you have a shortfall?

Have you enquired about switching to repayment right now on the same terms so it is all paid off after 4 years?

R6Nick

Sorry I should have made that clear. Im only paying interest just now I believe so at the end of the term I wont have paid off the mortgage completely.

I did ask about increasing my payment on same terms, to clear this would mean an extra £100pm...however a loan would be an extra £85pm saving me about £700 over 4 years. Not sure if thats worth the hassle.

Nick

Matty0682

Hi Nick,

SO you have 9k mortgage remaining and 4 years left

What is your tie-in period?
What is your current rate?

As you only on interest only at the moment, your mortgage will never be paid-off

Phlik

It will be far better to throw the extra money at the mortgage for 4 years than take out a loan at 12.9%. (sorry, at work at mo so haven't time to do the sums).

Phlik

SandC

I still say switch to repayment. You can't beat a mortgage rate with a personal loan rate - plus there will be a charge and probably a lot more than £700 to pay the mortgage off early.

daniel_owen_uk

Yup makes complete sense, switch to repayment would be the same as getting a Personal Loan to pay it off, but give you a much more favourable APR.

ViolaLass

I don't understand - you say the loan would cost an extra £85pm per month but after 5 years that is only £5100 so how would that clear your shortfall?