is it worth my while to stooze



  • flynnf
    flynnf Posts: 14 Forumite
    hey there, i looked into borrowing back on my mortgage. i asked to borrow back 10000, at 1%. which at a 3% saving account would earn me 300 before tax. but my mortage payments will go up by 59 pounds per month(708), i know this includes some repayment of the 10000 but how do i work this so i actually benifit.
  • pjread
    pjread Posts: 1,102 Forumite
    First Post First Anniversary Combo Breaker
    edited 21 October 2013 at 6:46AM
    I haven't calculated it out properly, but that sounds about right if you've somewhere between around 12-15 years left on the mortgage. You need to factor in the capital repaid to see the benefit.

    e.g. you'll pay £708 over the year. You'll earn £240 interest post basic-rate tax. As you'd have incurred £100 interest (10k at 1%) you must have repaid £608 as well, so after year 1;
    You owe £10k minus £008 = £9392
    You have £10,240 in the bank from it
    The difference is £10,240 - £9392 = £848
    You paid £708 for £848, only just under 20% risk-free profit/growth in a year, and potentially year on year (assuming no early redemption penalties, other costs, etc)

    I'd do it in a heartbeat and to the maximum extent I could. (even though I'd 'only' make closer to 12% as a higher rate taxpayer, it's money for nothing unless there's some negative I can't see, e.g. other fees)

    I'd be tempted to make sure I borrowed at least enough that I was paying £1k a month via the 123 account for the free £10 a month as well, which should pretty much offset your mortgage interest...
  • Mulder00
    Mulder00 Posts: 508 Forumite
    First Anniversary First Post
    edited 23 October 2013 at 3:55PM
    You also have to factor in that you have to pay in at least £500 into the account each month, there's a £2 fee and you have to set up two direct debits in order to receive any interest. If you do that for both you and your wife, then you'll need this for both accounts.

    The biggest risk here given that you have to basically use this as a transactional account is that you can lose track of what money is actually there from the mortgage.

    I have just done something similar myself (not taken money from a mortgage though, but using this account as a savings account) and it just requires careful planning. Making sure that I know EXACTLY what direct debits are going off and that I put in the right amount of money each month. I'm not using this account for any variable costs so that I know exactly what's going in, what's going out and how much should be left.
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