Should i get a loan as rates are so cheap?

danlightbulb

I'm saving for a house deposit at the moment. I have £7k credit card debt at 0% which arose several years ago. I have just enough savings to pay this off, but as I'm putting the money away for a house deposit and the CC debt is at 0% for another 2+ years, there seems no value in wiping out my savings to pay off the CC.

With loan rates now so cheap, I could borrow another £10k for about £180 per month (if I get the lowest rates obviously which I might not). The cost to me of doing this, in interest paid, would only be £680 over 5 years, but the immediate benefit of a sudden £10k in my savings account would make getting a decent mortgage much easier and slash the time it takes me to save.

Repaying the loan monthly repayment, taking into account the mortgage monthly payment would hopefully be similar to the rent I'm paying now, should be fine.

I have options, and not sure which way to go. I know getting a loan will cost me some interest payments, but the cash injection has value in terms of my house deposit.

So, do I gear up?

jonesMUFCforever

.........But if you don't take out a loan will you not be able to save more quickly?
Whatever you do you will need to pay the debt off or the amount outstanding will be held against you when applying for a mortgage.

danlightbulb

Yes if I didn't take out the loan I could save the £180 per month, which would take 5 years ish to get to £10k. The loan would give me £10k right now, at a cost of £680.

In affordability terms getting a mortgage shouldn't be an issue, even with the loan too. Its saving that takes the time and £20k is alot of saving. I could get there instantly by having a loan right now.

lovinituk

The amount a mortgage lender would be willing to lend you would be decreased by having the loan.

Also you may find some mortgage lenders put off once they discover the deposit came from a loan.

parking_question_chap

The mortgage lender is likely to ask where the deposit is coming from. Im not sure what they think about deposits via credit cards, doesnt sound like somebody they will want to lend money to.

glosoli

Yes you need to be cautious about using personal loan funds for a deposit. With some lenders, its an instant underwriting referral, with others it could be an instant decline.

In any case, the increased deposit you will have access to will be negated by the reduced borrowing power through decreased affordability. £17,000 of debt for a first time buyer is not an insignificant amount.

danlightbulb

I won't be buying a house for another 6 to 10 months. So I'd have the loan now and just have it sitting in my account for that time. Statements will show that Ive had that money for some time and I'll just say I've saved it, which is mostly true as I'll have saved half of it.

In terms of affordability the loan shouldn't affect the mortgage too much from some calculators Ive used. I won't be maxing out my mortgage borrowing to the most I can get for my income so there is headroom there.

lovinituk

danlightbulb wrote: »

I won't be buying a house for another 6 to 10 months. So I'd have the loan now and just have it sitting in my account for that time. Statements will show that Ive had that money for some time and I'll just say I've saved it, which is mostly true as I'll have saved half of it.

Throwing mortgage fraud in to the mix is not a very sensible option!

glosoli

danlightbulb wrote: »

I won't be buying a house for another 6 to 10 months. So I'd have the loan now and just have it sitting in my account for that time. Statements will show that Ive had that money for some time and I'll just say I've saved it, which is mostly true as I'll have saved half of it.

In terms of affordability the loan shouldn't affect the mortgage too much from some calculators Ive used. I won't be maxing out my mortgage borrowing to the most I can get for my income so there is headroom there.

I am sorry but it doesn't work that way.

You could say you saved it, yes, and you could get away with it at the mortgage application stage. However, when the solicitor gets involved and asks to see evidence of the origin of funds, and they contact your lender to confirm if they are satisfied with an unsecured loan as a deposit, then you could find yourself of being in the unfortunate position of being accused of mortgage fraud as you lied to the mortgage company originally.

Furthermore, the mortgage advisor dealing with your application is unlikely to have been born yesterday. We have seen all the tricks in the book.

It is not worth the risk for a CIFAS marker, because rather than six months for a mortgage, you could be looking at six years.

danlightbulb

Fraud is a very extreme word for this scenario. I already have £7k saved and £7k on a 0% card. Have I saved that £7k or has it come from the card? (Answer - Ive saved it despite having the debt). This is a very similar scenario. Its all the same money and there is headroom in my finances to accomodate more (cheap) debt.

lovinituk

Well you seem to know best so what was the point of this thread?!

Good luck!