Would I benefit from adding unsecured loan to mortgage?

iwilldebtfree

I received a phone call today from the bank asking me if I would like to add my loan onto my mortgage! My loan is 9.2%apr (has 4.5yrs to run) and mortgage 3.2% fixed rate for 2 years (has 17yrs left to run). LTV of mortgage is 42%, which is the reason they said they can offer me this!

I mentioned to the bank that I intend to pay off the loan by April 2013 (I have periodic lump sums coming to me over the next 12mths so can do this).

On the surface, I'm thinking that if I make sure i'm disciplined and make the overpayments to the mortgage (I can pay up to 10% each year) then the reduced interest rate will be of benefit?

There is a charge for settling the loan early but no charges for adding the loan to the mortgage.

I appreciate that this will increase my mortgage payments, I could also comfortably afford to decrease the term by 2 years (need to consider the what ifs!!!).

My question is, shall I do it? and what else do I need to think about before I make a decision?


Thanks for your time x

HappyMJ

As long as you are discplined to make the extra repayments to the mortgage and even after that maintain the repayments at the higher rate you could clear your debts quicker than if you had left it alone. If you use the snowball calculator then you could figure out how quickly your debts would shrink by by maintaining the exact same payments you are making now. You might find your unsecured debt and mortgage could clear in 7 years rather than 17 years.

The 10% each year only applies to the early part of the loan after that has expired you can usually make any repayment you want so you could save in an ISA earning 3.2% or more then once out of the early repayment period just transfer the money from the ISA to the mortgage.

Also what was the reason for getting the loan? If you envisage a large expense in the future such as this then instead of making overpayments which can't be retreived you might be better of saving the maximum you can in ISA's and high interest savings accounts instead and when you need to buy a new car, extend the house or whatever you can just use that money instead of borrowing at a high 9% interest rate.

Dave_Ham

Hi there,

Firstly what a bank! - Out of interest which bank is doing this as first I have heard adding to a good rate - fair play

Whilst it does not constitute good advice to increase the term of a debt, compounded from unsecured to secured; if you have done the maths and you are diligent enough to overpay and pay early, then sounds sensible.

You may receive alternative advice or subjective slurs for doing this on the coming posts, although if you stick to your plan and the fee is not high this can work....

All the best

iwilldebtfree

HappyMJ wrote: »

The 10% each year only applies to the early part of the loan after that has expired you can usually make any repayment you want so you could save in an ISA earning 3.2% or more then once out of the early repayment period just transfer the money from the ISA to the mortgage.

Thanks for your reply. I didn't know that about the overpayment, that's heartening as is the snowball calculator

thank you

iwilldebtfree

Dave_Ham wrote: »

Firstly what a bank! - Out of interest which bank is doing this as first I have heard adding to a good rate - fair play

RBS! thanks for your reply