Paying more than 5.4%? Borrowing money might save you money!

jamesd

Saisbury's has a personal loan rate of 5.4% on loans between £7,500 and £15,000. If your mortgage rate is higher than this you can save money by borrowing, using the money to overpay on your mortgage, then putting the saved mortgage payment amounts and extra money to work to clear the personal loan.

You need extra money above the mortgage saving because the personal loan has to be repaid more quickly than the mortgage. Those who are overpaying on their mortgages are quite likely to already have that extra money available and could save more by using the loan approach than just making direct mortgage payments.

It has the added advantage of switching some secured borrowing to unsecured borrowing, so there's reduced financial risk compared to leaving the money owing on the mortgage.

It's probably a bit early to do this because personal loan rates may continue to fall for a while yet, but it's an interesting development for some to watch.

The easy win for more people is using 0% for purchase credit card deals. No finance cost for them, so spend on the card, put the money against the mortgage and into a savings account, then use the savings account portion or reduced mortgage overpayments to repay at the end of the card deal. Other than the use of your credit score this is free money, a nice way to turn the tables on the banks.

Those on mortgage rates above 2% can benefit from some of the credit card balance transfer deals available, with some having breakeven around 2% mortgage interest rate and many at 3%. The 3% is the common 3% fee for twelve months balance transfer deal. Its actual rate is a little over 3% because the capital is being repaid over the term of the credit card deal.

alwaystryyourbest

Thanks for this information my mortgage is on a rate of 5.69 for another 2 years , so it might be worth it for me..

edinburgher

Thanks for this information my mortgage is on a rate of 5.69 for another 2 years , so it might be worth it for me..

Ouch - and there was me about to make a sarcy comment about nobody being on a rate that high these days!

Not as if I can talk, 4.99% and proud and relatives were on 5.89% for 5 years :eek:

BookWorm

edinburgher wrote: »

Ouch - and there was me about to make a sarcy comment about nobody being on a rate that high these days!

Not as if I can talk, 4.99% and proud and relatives were on 5.89% for 5 years :eek:

My rate is 6.59% :eek: - can't wait til June so I can change it!

jamesd

At 4.99% you might be able to benefit from the credit card exploiting.

A few people might be able to use unsecured borrowing to get their mortgage LTV below one of the key thresholds to get a better mortgage rate. The loan will affect affordability calculations but that won't matter for some. Say an FTB now getting close to 85%, 80% or 75% after lots of overpaying. Their mortgage cost will already be reduced due to the reduced amount owed and that'll leave them with more affordability to use for the loan.

That sort of stuff takes very careful checking but it's interesting for those it might apply to.

sweetilemon

Our 5.99% finishes this month!! Woo...after 5 years!