Paying off mortgage with new loan

Denzel09uk

Hi guys

I know this goes against the unwritten rule of borrowing.

Just had a thought.

I have about 22.5k left on one of my mortgages. I thought that I could borrow 22.5k off of Zopa at 7.2% giving me 1600 interest charges over 5 years

Whereas my mortgage is 2.25% and over 21 years left. I think but don't quote me on it p. The interest will be about 4500 over the next 20 years

Granted the repayments will be £200 a month more. But it should save me on interest. Also if I over my monthly repayments will be lower

Any thoughts

Regards

Thrugelmir

Why not simply overpay your mortgage. That way you'd pay less interest. Your mortgage term is simply the date the loan has to be settled by. There's no penalty for settling early.

~Beanie~

I might be missing somthing here but why would you swap 2.25% interest for 7.2%? Can't you just overpay your curent mortage by £200 each month instead of paying it off a loan with a higher rate?

ACG

As above, just overpay your mortgage to the same repayments as the loan and it will be cheaper than the loan (assuming there are no early repayment charges.

AnotherJoe

Well, on the upside, at least you asked before doing this.
As said, just overpay your existing mortgage it will be cheaper and faster.

Denzel09uk

Thanks Guys, that was my first thought but I suppose the thing im trying to achieve is over paying you are right,
The loan option was merely to make sure the loan is paid, so it forces me to pay so to speak.

audigex

If you want a higher minimum payment, could you just remortgage with a shorter term?

Dropping that 21 years to 10 or 15 years, for example, will push your minimum payment up (forcing you to pay it) but without increasing the interest rate (if anything, the shorter term tends to attract a lower interest rate than a longer term!)

Personally I prefer a longer term to give me the flexibility of making lower payments if I need to, but if it's a question of personal discipline then a mortgage over a shorter term should have the same effect for you.

If not, the simplest thing, to me, would just be to set up a fixed overpayment with your lender and have a direct debit/standing order to pay the fixed amount (minimum + £200) every month. Okay so you won't "have" to pay it, but it will happen automatically and you'd have to very deliberately go and change the direct debit back if you wanted to stop, so you can just pretend to yourself that the higher sum is the minimum payment.

Thrugelmir

Denzel09uk wrote: »

The loan option was merely to make sure the loan is paid, so it forces me to pay so to speak.

Every month whatever you've managed to save. Transfer this across to the mortgage. Then you won't be able to touch the money.