Using remortgage funds for savings

meshers4

I was just wondering why people don't take out a remortgage on their property and then place those funds in a high interest savings account to reap the profit?
My thinking is that if for example I was to remortgage a sum of £50,000 on my property at an interest rate of 3%, I could then place those funds in a high interest account paying 5% and then by the end of the year I would be 2% in profit gaining me £1000.
Am I missing something vital in my reasoning as I can't understand why people do not do this?
Any thoughts on this topic would be appreciated.

TCA

meshers4 wrote: »

My thinking is that if for example I was to remortgage a sum of £50,000 on my property at an interest rate of 3%, I could then place those funds in a high interest account paying 5%

Which high interest account(/s) pays 5% on £50,000?

AnotherJoe

TCA wrote: »

Which high interest account(/s) pays 5% on £50,000?

^^^^^^What TCA said. Please name that account.

jimjames

meshers4 wrote: »

Am I missing something vital in my reasoning as I can't understand why people do not do this?

Some people do it. But if you try to find an account for £50k at 5% then I think you might find out why it's not very common.
It's effectively no different from using surplus cash to invest or save rather than paying off the mortgage faster although it's much easier to get a 5% plus return from investments than cash.

eskbanker

meshers4 wrote: »

Am I missing something vital in my reasoning as I can't understand why people do not do this?
Any thoughts on this topic would be appreciated.

Just to add to the comments above, tax is another factor - once you've used up your £1K (or £500) personal savings allowance, your savings interest is taxed at your marginal rate, so the notional £2,500 gross interest would become no better than £2,200 after tax....

meshers4

I haven't done a great deal of research into different accounts as it was just a thought that I was considering, however I did notice that LCF do a 2 year bond account that has interest at 6.5%

ColdIron

Do you mean London Capital and Finance?

Do a search for them, there are quite a few threads, here is one of them
It is not a savings product and has no FSCS protection. You could lose 100% of your cash

EdGasket

You won't do better than paying off your mortgage without taking risk. If that were not the case, then the bank that is lending you the mortgtage money would already be investing it where you 'think' you can get a better return.

If you want to take a leveraged gamble on the stockmarket then a mortgage is a cheap way to raise funds but if you get it wrong you'll lose more than your shirt.

swindiff

That's not entirely true, mortgages can be got at rates below 2% without too much difficulty and it is still possible to earn between 3 and 5% on your savings albeit with small amounts spread over several accounts.

TheShape

My mortgage rate is currently 1.74%. Between BOS and Tesco I could save £21000 @ 3%. A couple could save £42000.

It's not massively lucrative but could be done. Reduced rates on current accounts would make it more difficult and beyond your PSA, more difficult still.

Stoozing at 0% on credit cards is potentially more lucrative depending on how large you can grow the stooze pot.

YorkshireBoy

swindiff wrote: »

That's not entirely true, mortgages can be got at rates below 2% without too much difficulty and it is still possible to earn between 3 and 5% on your savings albeit with small amounts spread over several accounts.

Free of arrangement fees or whatever they're called these days?

Of course paying a fee at the outset and then placing those funds in a variable rate account these days wouldn't be the smartest of moves!