Loan Stoozing?

deed02392

Interest rates are at historic lows. I can borrow £15k for 5 years at 4.4%.

Given there seems to be an expectation rates could go up to 6 or 7% over the next five years, is it worth considering borrowing cash directly (as opposed to credit card stoozing where you do it for 0% by redirecting your spending) and banking your loan in high interest accounts (specifically P2P lending, where you'll quite comfortably start off getting 6% immediately and around 11% with a bit of care, quite low risk).

Thoughts?

~Brock~

I think any form of stoozing, even back in the day when it was actually possible due to credit being thrown around like confetti, is a bonkers idea that introduces all sorts of other temptations to use these newly aquired funds for non stoozing purposes....but it is even more so if you are proposing to put the savings part in something that isn't covered by the FSCS guarantee. :eek:

BillJones

deed02392 wrote: »

Interest rates are at historic lows. I can borrow £15k for 5 years at 4.4%.

Given there seems to be an expectation rates could go up to 6 or 7% over the next five years...

...Thoughts?

Where are you seeing predictions of rates at 6 or 7%?

If that's the top end of a range of expectations, then it's not a useful number for your calculations, any more than taking the low end of expectations would be.

deed02392

I haven't looked deeply into authoritative predictions I admit, I'm inferring this from the latest MSE e-mail which asked "could you afford your mortgage if it shot up to 6% or 7%".

But on further reflection, it does strike me as a bit haphazard to borrow this much money for such a potentially small spread on APR/AER, especially when P2P lending is quite time-consuming if you're being careful, and risky if you're not.

ricky_v

deed02392 wrote: »

Interest rates are at historic lows. I can borrow £15k for 5 years at 4.4%.

Given there seems to be an expectation rates could go up to 6 or 7% over the next five years, is it worth considering borrowing cash directly (as opposed to credit card stoozing where you do it for 0% by redirecting your spending) and banking your loan in high interest accounts (specifically P2P lending, where you'll quite comfortably start off getting 6% immediately and around 11% with a bit of care, quite low risk).

Thoughts?

Yes it's kinda what I'm planning to do. This years mortgage overpayment money might go into certain savings accounts where the net rate exceeds the rate on the mortgage.

Needless to say the money should not be spent and when the mortgage rate exceeds any savings rate then the savings will be used to pay off some of the mortgage, I'm also doing this as there's no restriction on overpayments from later on this year.

However, I would never take a loan out to speculate future rate rises. I was convinced when I first took the mortgage out that interest rates will rise very soon, so took a slightly higher rate in return for a fix. That was in 2011.

Stick with 0% credit cards, you know where you are with them

BillJones

deed02392 wrote: »

I haven't looked deeply into authoritative predictions I admit, I'm inferring this from the latest MSE e-mail which asked "could you afford your mortgage if it shot up to 6% or 7%".

Those are taking the top end of what people think might be possible, which is the right number to take when making sure that you can definitely afford the mortgage, no matter what happens.

In general it's unlikely that you can find "mistakes" in the interest rate market that let you remove free money. People such as me spend our days trading interest rates, and would not have let things get this far out of line.

bigadaj

BillJones wrote: »

Those are taking the top end of what people think might be possible, which is the right number to take when making sure that you can definitely afford the mortgage, no matter what happens.

In general it's unlikely that you can find "mistakes" in the interest rate market that let you remove free money. People such as me spend our days trading interest rates, and would not have let things get this far out of line.

This point can be debated for ages, trading at an institutional level means that even the experts think the market isn't totally efficient and that very small anomalies can be profited from. The efficiency of the market may also be overridden by governmental policy, as evidenced by the current level of base rate sand more pointedly by the funding for lending scheme which has given huge amounts if nearly free money to lenders, this wouldn't have happened ina. Free market.

Interest rates could easily go up to double figures, as has happened in relatively recent times, though I agree with the general consensus that it's difficult to profit from stoozing without taking in risk.

Stoozing generally involves the use of 0% credit cards with annual total costs of 1-2% so marginal amounts could still be made on moderate sums. Of course investing the money would in theory give profits of maybe 5% annually given long term market returns but that would be an excessive risk level for most given that the borrowed money would generally only be available for a couple of years.