Loan vs. Mortgage

stuteach

Hi All

I currently have a Rapid Repay Mortgage Account where the debit interest rate currently sits at 6.7%, although this does fluctuate. Would it be wise to get one of the lower interest rate loans (if possible) at say 5.7% for example, pay this direct into my account, and just pay that off over 3 or 4 years, while hoping that the Rapid Repay Account interest rate does not fall below the 5.7% loan rate?

Any help greatly appreciated.

Rafter

Stu,

That is a shocking rate for a mortgage - particularly a flexible one.

Your logic is right - you would save money, but given your mortgage is a much bigger debt, could you not sort that out, even if it has nasty early repayment charges?

R.

stuteach

Thanks Rafter.

This is something that I am currently looking into. Unfortunately I got my mortgage before I discovered the wonders of MSE. All I'm really after is a mortgage that I can overpay into for free, and hopefully pay off a few years early.

Once again, thanks for the help.

Rafter

An awful lot of morgages allow you to make overpayments these days and you don't necessarily need a special flexible or offset one.

Some of the big building societies allow you to do this - and still charge you a competitive interest rate.

Personally I offset all my spare savings and current account with First Direct and on a fixed rate which is fairly competitive and certainly a lot lower than 6.7%.

6.7% is a really high rate, even with interest rates and base rates really high. You are paying 1.5% above bank base rate and over 2.5% above inflation.

Someone with a best buy deal is paying around base rate or 1% above inflation.

You are therefore paying twice as much in interest/ profit to your mortgage provider than a best buy.

If you don't have an extended tie-in or penalty with your current mortgage I would suggest moving provider. If your mortgage is £100,000 you would save £1500 a year. Or put another way, you could repay your mortgage 3 years ealier if you keep your current payments the same and assuming you have 20 years to go.

A lot of assumptions there - post back if you want any more suggestions!