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Get a loan to clear mortgage? *update*

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Ivrytwr3
Ivrytwr3 Posts: 6,299 Forumite
Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
edited 22 April 2017 at 3:57PM in Mortgages & endowments
Hi all,

I am looking for advice on a possible option i am looking at.

We currently have a 2 part mortgage on our property. 1 part is at £52990 @ 1% and the other is at £21478 @ 3.99%.

On part 2 the remaining term is 7.5yrs and we currently pay £290 per month and overpay by £200 per month.

I have seen a loan for £20k at 2.81% and there are no fees for overpayments and is £357 per month.

Are there any pitfalls in using the loan to clear the mortgage and then overpaying the loan? ie where we overpaid the mortgage by £200 per month, we would overpay the loan by £145 to match what we were doing with the mortgage.

Make sense or clear as mud?!

My thinking is, interest rates are not going to drop 1%, but they may start to rise, therefore this is like a 5 year fixed with no fees!

With the no charges for overpayments, just by doing what we are doing with the mortgage saves us interest and reduces the term.

That easy or not?! Anyone able to cast some figures?!
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Comments

  • [Deleted User]
    [Deleted User] Posts: 35,242 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    Is the 2.81% loan one you're likely to get?
  • Ivrytwr3
    Ivrytwr3 Posts: 6,299 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    no idea - but not even going to try if someone tells me it's a bad idea!
  • enjoyyourshoes
    enjoyyourshoes Posts: 1,093 Forumite
    Seventh Anniversary 1,000 Posts Combo Breaker
    the loan 2 is a fixed interest for a defined term term I assume and as such will have an early repayment charge.

    need to do careful excel modelling over the whole term of both including era and any fees for the new one to see if its financially viable.

    Why not look at 3rd option of mortgage and do the sae financial modelling to compare like for like the various options?
    Debt is a symptom, solve the problem.
  • Ivrytwr3
    Ivrytwr3 Posts: 6,299 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    edited 27 March 2017 at 10:04PM
    The loan blurb states no changes for overpayments.

    http://www.tsb.co.uk/personal-loans/
  • obay
    obay Posts: 570 Forumite
    I don't think personally it's a bad idea, you're going from secured to unsecured, I've never seen a rate this cheap in the UK..

    I am sure others will come back and help you, I was just bumping it so I can know what others say..
    [STRIKE]1/12/16 - £152,599.00 [/STRIKE]
    [STRIKE]11/11/17 - £145,990.00 [/STRIKE] <> Overpaid £3916.
    11/11/18 - £142,074.00
    Barclays Car (5.99%)£0/£8,832.37
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Summary

    £52990 @ 1%
    £21478 @ 3.99%.

    Term is 7.5yrs and we currently pay £290 per month and overpay by £200 per month.

    I have seen a loan for £20k at 2.81% and there are no fees for overpayments and is £357 per month.


    assuming you will pay the £1,478 while thinking and be left with £20k

    £20,000 @ 3.99% £490pm 44m interest £1,530.
    £20,000 @ 2.81% £490pm 43m interest £1,046

    You will save around 1 payment and have it paid off in under 4 years

    might be worth looking at something like interest free credit cards on top of the loan.
    Low fees essential purchase cards can give cashflow benefits to reduce interest.

    the max you can save is £1500.(unless rates go up).

    any fee free retention deals from your lender that you could use.
  • Ivrytwr3
    Ivrytwr3 Posts: 6,299 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Thanks GM4L - exactly what i was after!

    OK.............the plot thickens.

    I made the call to my mortgage provider and asked the question of can they give me a better rate than the mortgage on Part 2:

    They said they can combine the 2 x mortgages whilst keeping the Lifetime Tracker of 1% - so we now have one mortgage at 1%!!!

    I queried this - where is the catch? I can continue to make over payments and there is no product fee.

    Thank you soooo much - it was well worth a call to them!
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    stop overpaying and start saving the money must be easy to get better than 1% net somewhere, a few regular savers are over that.
  • Ivrytwr3
    Ivrytwr3 Posts: 6,299 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    edited 22 April 2017 at 4:21PM
    Soooooo, the new mortgage is now set up, however, there is an issue with the overpayment side.

    I made an overpayment of the usual amount we had been doing with the original mortgage for the past several years (£200) and kept checking on it via online banking - it just sat there not been applied to the mortgage for approx 3 weeks.

    I called Santander who stated that to reduce the term i must match or increase the monthly amount - eh?!

    On the A&L original mortgage as we were out of term we could overpay as much as we liked without charge and with no minimum amount - this was very important to us and during the Santander set up i stressed this and was assured the only difference in switching the mortgage was i was getting a great new rate!

    I lodged a complaint and the result was to reduce the term i need to match or increase the mortgage monthly payment as explained when i originally complained - not a huge problem as we would need to overpay £230 not £200 so an increase of £30 per month; we will do this, but £30 per month is not something i had budgeted for.

    What are peoples thoughts on this?
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Why are you overpaying when you can get a better rate saving?
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