Using Student Loan to pay off mortgage?

Penny-Wise_4

Mr Penny-Wise will be at Uni for the next 3.5 years. At the moment his student loans & grants (about £5100 a year) are going into a couple of ISAs, as we can just about manage on my wage, and we will only have to dip into them in an emergency (we got the loans just so we could gain interest on them).

If no emergency happens, at the end of the 3.5 years we should have around:

+ £20k in the ISAs
- £16k student loan @ 2.6% interest
- £25.5k mortgage @ 5.69% interest

We did plan to pay off the student loan as soon as he had a job but wonder whether it would be better to use the £20k to pay off the bulk of the mortgage as the interest rate will be higher than the student loan.

Does this make sense? Am i missing anything?

How would the £16k Student Loan debt affect our credit rating & our ability to get a mortgage for a nicer house?

Walletwatch

Spot on, so far as the thought goes - repay the costlier debt first, and take max advantage of the student debt. As for the credit rating aspect, am not quite sure it will get impacted negatively, but stand to be corrected on that one.

DiggingOut

Sounds like good thinking to me.

I'm not a banker, but if I were, the presence of £16K in student loans at a low interest rate wouldn't bother me much/at all compared to the fact that you will have virtually paid off a mortgage in entirety. That makes you a very attractive borrower, and if your income justifies the amount you want to borrow, I can't imagine you having any problem.

Twmble

Remember also that Mr Penny-wise won't have to pay back his student loan until he is earning 85% of the national average wage (I think that's right) which at the minute is about £1800 per month (~£22500 per annum) - regardless of what you're earning - and even then it'll be a managable amount per month.

Twmble

Penny-Wise_4

I think he will have to pay back a percentage of anything he earns over £15k, and it is likely he will as he is doing a degree to become a computer programmer. He should earn at least £20k

Twmble

Possibly...student loans have changed since I were a lad (about 5 years ago!). What I described above is the case for me.

T

Oracus

I am a banker (still makes me laugh) - and I did exactly that a couple of years ago - had my student loan still sat in an ISA, and used it as a deposit on a house rather than pay it all off.

Student loan isn't registered with experian etc AFAIK, therefore it doesnt go against you in the slightest, and is only considered as a debt when applying for furtehr lending in the same way a larger mortgage would be - and is by far the cheapest way to do things!

Os`