Use a Loan to overpay Mortgage?

willtt

Hello all,

I have searched the forum thinking this may have been asked before. Here are the figures, if I take out a 10K loan at 3.6 percent, itll cost me around £180 a month to pay back over 60 months. Paying back a total that is just short of £11,000.

If I then use this amount to make an over payment on my mortgage I will save £6,000 in interest. So with these figures I will have saved £5,000? Am I missing something here? I am assuming if it was this simple everybody would be doing it?

Many thanks

silvercar

You pay almost £11k to save £6k off your mortgage, so it has cost you £5k to do.

Dird

silvercar wrote: »

You pay almost £11k to save £6k off your mortgage, so it has cost you £5k to do.

But his mortgage principal will also be £10k lower?

willtt

Sorry, to be more clear, lending £10,000 would cost me just short of £1000 in interest over the 60 months. So I'd repay £11,000 but only an additional £1000 to what I was lent.

willtt

Hello Dird,

Yes exactly what I'm thinking, is there a catch?

barbarawright

Will you get a loan at 3.6%?

willtt

Hello,

Yes I can get the loan at that rate.

ViolaLass

Opting to overpay the mortgage by £180 a month would be more flexible.

nidO

If you can get a loan at that rate and you're positive you've got your sums right, go for it.

Hint: I suspect you haven't got your sums right. You may still end up with a (much smaller) gain, but your figures sound like you're basing your gain on the amount of interest you'd save on the remaining lifetime of the mortgage.
This isn't an accurate comparison though, as you should be calculating how much interest you'll be saving over the course of 60 months, as instead of taking out and paying back the loan you could be putting that £180/month towards the mortgage.

The reason everybody isn't doing this, leaving aside the above, is because people who can get large 3.6% loans tend to have mortgages at even lower interest rates - Your mortgage interest rate simply has to be higher than the rate you can get the loan at for it to be worth doing.

ACG

What rate is your mortgage on?

sam2015_2

Are you thinking of making a 10k one off overpayment? Can you do that without occurring any charges?

Why not overpay the mortgage monthly by £180 intead of getting a loan? You'd save that £1000 interest on the mortgage.

Having a loan will affect the affordability IF you are going to remortgage before the loan is paid off.
What is the interest on your mortgage and how much capital left?