Low interest loan to pay off mortgage

frugal2013

Hi

I am considering getting a low interest loan to pay off the last 10k of my mortgage to save on the high interest I pay on the mortgage (5.5%).

Does anyone forsee any issues with this?

Thanks

Clive_Woody

Are there any early redemption penalties for paying off the mortgage early?

frugal2013

Hi Clive

As far as I know, once the fixed term ends next year, I follow the SVR which is 5.5% or so. I can then make overpayments (I assume without penalty but I will check). My plan is to sink my savings into the mortgage which will leave me with around 10k left to pay off.

ReadingTim

Paying off the mortgage is great, but it means your assets (ie your savings) are now tied up in property, and therefore far less liquid (ie harder to get your hands on) than cash in the bank. Should you need cash quickly, this could be a problem.

Depending on the terms of your mortgage, you might be able to borrow back any overpayments made previously - overpayments are usually limited in the fixed rate period, but can be unlimited thereafter, and could be thought of like an offset savings account (this was how I used my Nationwide mortgage account, taken out in 2006 and paid off 8 years later).

If your mortgage permits, I'd make as many overpayments as I'm allowed in the fixed rate period, then dump all of my savings in thereafter, knowing I can access them if something happens and I need the cash. Yes, you'll be paying 5.5%, but there's no guarantee you'd get a £10k personal loan at that rate now, nor that you'd get that rate in the event you needed cash in a hurry in the future - you could end up paying a larger percentage on a higher amount...