A Bank Loan To Pay My Small Mortgage Off?

Wilky47scrooge

Just wondering if anyone has been in the same boat?

I'm coming to the end of my 2 year tie-in period on my mortgage, and I have enough funds in my savings account to reduce my mortgage to £16,500 at this period.
However I can only overpay 10% per year off my mortgage, therefore I think I will need to switch mortgages in order to pay my all my savings total into off mortgage in one go.

I'm wondering if it's better to get a bank loan for the £16,500 so I can add it to my savings and completely pay off my mortgage at the end of the 2 year period and avoid having to switch lenders.
The bank loans repayment rates are lower than my mortgage lenders base rate.

alanobrien

At the end of the fixed rate you could just move the whole thing to a new lender with a no ties mortgage and pay off as much as you like when you like.

I would have thought that would be cheaper than getting a bank loan but i guess with fees etc you would need to do the sums.

regularsaver1

at the end of the 2 year tie in when you go to SVR there will be no tie-ins will there??

Wilky47scrooge

There are early redemption fees of £2K to pay in the first year and £1K in the second year. So after the 2 year period there are no fees to pay.
One of my concerns was that the mortgage lenders I've researched only lend a minimum of £25K which is more than I want to borrow that's why I was considering a bank loan.
I guess on the otherhand if I borrowed £25K with unlimited overpayments I could reduce the loan to £16.5K straight away?

Franko43

I too am coming to the end of my fixed rate and have 18,000 savings to take off the mortgage. I've another £20,000 to pay, need to do the sums but this sounds like a great idea. Here in Ireland we can get pretty decent low interest Credit Union loans.

Wilky47scrooge

alanobrien wrote:

At the end of the fixed rate you could just move the whole thing to a new lender with a no ties mortgage and pay off as much as you like when you like.

I would have thought that would be cheaper than getting a bank loan but i guess with fees etc you would need to do the sums.

Thanks for that, I'd never thought of doing it that way. At the end of the term I'll owe £90k and have £73,500 in savings. Do you mean borrow £90K from another lender and then pay £73,500 off the mortgage and get a cheaper interest rate?

regularsaver1

what sort of term are you considering for the remaining balance ?

alanobrien

Wilky47scrooge wrote:

Thanks for that, I'd never thought of doing it that way. At the end of the term I'll owe £90k and have £73,500 in savings. Do you mean borrow £90K from another lender and then pay £73,500 off the mortgage and get a cheaper interest rate?

Exactly so, but you must be sure it has no ties or limits on repayments first. Maybe even worth going to a broker to get the best deal and i dont often say that

Wilky47scrooge

I was thinking of a 10 year term, this works out at approx £185 /month with my current lenders base rate. I can overpay 10% per year as well.
With the bank loan it works out at approx £182 / month and I can pay as much off as I like.

regularsaver1

some loans will not allow you to have that term, sometimes maximum of 7 years - but i see you have found one. i presume this is a flexible type one?

Jays

Wilky47scrooge wrote:

Thanks for that, I'd never thought of doing it that way. At the end of the term I'll owe £90k and have £73,500 in savings. Do you mean borrow £90K from another lender and then pay £73,500 off the mortgage and get a cheaper interest rate?

You may like to consider an offset mortgage, which means you offset your debt (mortgage) by your savings and current accounts, and then only pay interest on the balance. By doing this you can still access your savings if necessary or in an emergency, but only pay interest on the balance.

Some will argue offset mortgages have traditionally higher interest rates but I found by going through a mortgage broker such as London & Country we were offered more favourable (and competitive) terms than the bank offered directly to the public.

When looking into the offset mortgages, you will find there are banks that offer them as I have described ie First Direct, Intelligent Finance; and then there is the One Account, which is a little different in that there is only one current account into which goes the mortgage and the savings, and is therefore always in the red until the mortgage is paid. I thought this would be daunting, to always see I was in the red, rather than having the separate mortgage, savings and current accounts.

Have a look, see what you think,
Best wishes
Jays