Loan to pay off mortgage - is it a good idea?

Debbie123

I've been looking at the option of paying off our mortgage. It's 16,500 at the moment and the 25 year term is up in 2013.

It's an endowment mortgage.

I am thinking of (a) keeping the endowment going purely as an investment

(b) getting a loan for approx £10,000 to be paid back over 2 - 3 years. Is this a wise move?

Thanks

Hereward

It depends on the rate you can get on your loan. If it is less than your current mortgage rate, then it makes perfect sense to take out a loan to pay off your mortgage; however, I think it is more likely that the loan rate will be more than your mortgage rate. In this instance it would make more sense to commit the cash you would have used to repay for loan to overpay your mortgage. You will still achieve your aim of becoming mortgage free within 2 - 3 years, but will have saved additional interest payments, thus making you slightly better off.

ashcarrot

I know nothing about endowmant mortgages but I know if i was in your position i'd go for the loan, and get an unsecured one meaning your home is safe if you hit financial problems. Though im thinking the loan rates will be more than your mortgage rates.

itgirlinuk

How about a 0% balance transfers for a year on a new credit card instead? Obviously, you have to make sure you pay off the credit card properly and based on the credit limit you get, you might be able to pay off atleast half of your remaining mortgage without incurring additional interest.

macca64

Or you could go for the M&S Card that offers 3.90% LOB, should be cheaper than your mortgage!!

Thefunkygibbons

But you would need to have a way of transferring such a balance to your bank account first

read the guide on https://www.stoozing.com for information on how to do this

jobbingmusician

I've been thinking about this. I had £55k outstanding on a flexible mortgage at 6.5%:eek: I'm paying £1200 per month (and usually a bit more) and the provider says it will take me another 4 yrs to pay off if I continue at £1200.

Mortgage provider would loan me £60k at ummm I think it was 5.9%. Repayments would be slightly lower and I'd have £5k in my pocket. I decided against. Why? 2 reasons

1. job was insecure. Atm I have the possibility of making the original payments (under £500 each month) or even taking a payments break if things go pear shaped.

2. (Actually more important) I decided it's better to have a loan at a higher amount for a shorter period. The loan only allows a max of 10% overpayment. Every month I put extra payments in (on top of the £1200) so I've decided to really concentrate on throwing money at the existing mortgage, and trying to pay the thing off!

Debbie123

Thanks for your reponse. Our mortgage rate is 6.75% standard variable rate. We can overpay any amount we want and pay off mortgage without incurring any penalties.

One loan I looked at (just searching for examples) was the Halifax at 6. something. The payments were approx £300 for 3 years on £10,000 which meant we'd pay £1100 in interest. I don't know how to work out how much we would be paying in interest paying the mortgage off now. The payments we make are simply going off the interest at the moment (endowment). I was thinking (although I could be wrong) that the interest accrued via a loan would be far less than paying the mortgage the way we are at the moment.

Do you know how I could calculate how much I would save. At the moment the mortgage has 7 years to run at 6.75% on £16,500. I've no idea how to calculate this.

I did see a link to a loan via this website at 4. something %.

I'm in the dark when it comes to things like this so just looking at my options.

Thanks for yur help

jobbingmusician

One option to finding out how much interest you would pay is simply to ring your mortgage company and ask them - I keep on bothering mine with queries like this. I'm sure there are loads of useful links, though - just google 'snowball calculator'.

macca64

Well a £16,500 interest only mortgage at 6.75% will incur interest of £1,113.75 per annum.

macca64

Forgot to add, https://www.whatsthecost.com has the snowball calculator mentioned in an earlier post.