what should I do

peter_pan_4

with help from mum have got mortgage down to£18,000. Should I now stick with a mortgage or go for some sort of loan to pay itof as quick as possible. Was paying £300 per month so I know I can afford that. My reasoning is that a loan rate will not vary so I can have a regular budget. New to this so apologies if I have wordrd this wrong

IveSeenTheLight

peter_pan wrote: »

with help from mum have got mortgage down to£18,000. Should I now stick with a mortgage or go for some sort of loan to pay itof as quick as possible. Was paying £300 per month so I know I can afford that. My reasoning is that a loan rate will not vary so I can have a regular budget. New to this so apologies if I have wordrd this wrong

Peter, This is a similar post to your first posting on this site.
Not sure how I can link your initial post in here, but I will re-post my response from the last time

IveSeenTheLight wrote: »

There are two main things you have to consider: -

1) Is there any early redemption penalty for paying your mortgage off early
2) What is the difference between your mortgage interest rate and your potential loan interest rate

You also need to weigh up whether the mortgage account allows overpayments as opposed to your potential loan.

Try working out how much you can overpay into your mortgage account and when this would mean you have paid it off by.
How much interest would you pay into the mortgage as opposed to how much you would pay on a personal loan?

On my mortgage, my early redemption penalty is 2% of whatever I pay over the agreed overpayment limit. For 18,000 pounds this works out to be 360 pounds.
If I had the money, it would certainly be worth considering.

As it sounds like you do not have the funds at hand (you are looking to get a loan) although you could be mortgage free, you would still have a debt of circa 18,000 pounds.

I would personally max out the overpayments on the mortgage and consider paying above the agreed overpayment amount and pay the early redemption fees.
In my mortgage, the early redemption penalty works out at approx 4 months interest on the overpayed amount.
If your mortgage is to last more than the 4 months, then ultimately you are saving money even though you pay early redemption costs.

e.g. 18,000 pounds mortgage with 4 years left to pay is approx 425 pounds per month at 6.01%
Cost to pay off 18,000 pounds at 2% ERP is 360 pounds
Interest payments in the first four months is 350.50 pounds
Total Interest payable over the 4 years = 2281.07 pounds
Interest saved paying off debt early = 2281.07 - 360 = 1921.07

Regardless of the amount you pay off on ERP or the term, with an ERP at 2% it works out to be approx 4 months interest