Loan versus Adding to Mortgage?

Richie_D_2

I have a Offset Mortgage that tracks 0.5% above base rate. I need to raise £9,550 and I want to pay it back over 5 years. The best rate I have found is 6.9% apr, which is a monthly payment of £187.71 meaning I will pay back a total of £11263. If I add £9,550 to my offset mortgage, but payback an extra £187 each month I think I am right in saying I will get an APR of 1% as long as the baserate is 0.5%.

Adding to my mortgage seems the cheapest option, am I missing something?

P.S. There is a £100 arrangement fee with my mortgage.

pvt

It is fairly obvious that the addition to your mortgage is the best deal, however without knowing all your circumstances, can't advise if that is your best option in this case. The big difference is that the cheaper option is obviously secured against you home - assuming you are happy with that additional risk, then it's a better deal.

I am surprised that your lender will extend your mortage when it is on such a caustic rate for them of 1%. Are you sure the additional advance is being offered at that rate too?

And a minor point, the APR will be more than 1% if the underlying rate is 1%. The APR will depend on such things as whether interest is calculated daily, monthly, or annually, etc.

pvt

Richie_D_2

pvt wrote: »

It is fairly obvious that the addition to your mortgage is the best deal, however without knowing all your circumstances, can't advise if that is your best option in this case. The big difference is that the cheaper option is obviously secured against you home - assuming you are happy with that additional risk, then it's a better deal.

I am surprised that your lender will extend your mortage when it is on such a caustic rate for them of 1%. Are you sure the additional advance is being offered at that rate too?

pvt

I believe it is the same rate, but I will check. Its a Barclays Offset Mortgage, I overpay each month as much as I able (normally £200), so far its been a good mortgage.

YorkshireBoy

Richie_D wrote: »

I have a Offset Mortgage that tracks 0.5% above base rate

I overpay each month as much as I able (normally £200)

Why?

You're saving 1% but you could have been making a net 2% (3%-1%) or more by putting the money in a savings account instead...plus you could have drawn down any overpayments already made and moved those into a savings account too.

Not relevant now, but if you're presented with the same opportunity in future, take it...its free money!

Richie_D_2

YorkshireBoy wrote: »

Why?

You're saving 1% but you could have been making a net 2% (3%-1%) or more by putting the money in a savings account instead...plus you could have drawn down any overpayments already made and moved those into a savings account too.

Not relevant now, but if you're presented with the same opportunity in future, take it...its free money!

Actually thinking about this logically, if I can't get the money via the mortgage and I have to pay 6.9APR I will be better off not overpaying the mortgage and using the £200 to get the loan over 3 years instead of 5???