Combining finance to pay-off mortgage before selling

JohnS123

I am planning to sell my flat and have 50% of mortgage outstanding.

The property has appreciated by 60%.

I would be able to put together the remainder of my mortgage to pay it off by a combination of savings, free credit card money transfer a personal loan. The ratio of the financing in the order listed is 27%, 27%, 46%.

The loan early repayment charges are negligible and the interest on the loan would be 4.4%.

My rational for this is that by getting the financing together to pay-off the mortgage, I would be able to unlock the full appreciation. On the sell of the property, I would able to repay it all and still turn a considerable profit.

I am thinking to put my flat on the market and when a serious buyer comes along execute the repayment of the mortgage. All should be settled within 3 months time.

Is my thinking correct?

TamsinC

what interest rate is your mortgage - 4.4% on your loan seems higher than most normal mortgage rates.

JohnS123

The mortgage interest rate is 1.99%

sal_III

What do you mean by "unlock the full appreciation"?

What are you hoping to achieve by repaying the mortgage before the sale, other than paying more than twice higher interest on the personal loan which alone will wipe out any savings from not paying the mortgage.

By all means use 0% balance transfer CCs and savings to pay out the mortgage, but the personal loan make no sense at all.

JohnS123

This is what I have in mind:

I would repay the loan within 90 days. Here is an example:
I borrow £1 and put this towards the mortgage. As the property appreciated 60% when the property sells this would now be worth £1.6. I would pay the loan back keeping the 0.5 counting 0.1 for the cost of the transaction.

I would not keep the loan for the full term of it just a fraction of time.

foxy-stoat

JohnS123 wrote: »

This is what I have in mind:

I would repay the loan within 90 days. Here is an example:
I borrow £1 and put this towards the mortgage. As the property appreciated 60% when the property sells this would now be worth £1.6. I would pay the loan back keeping the 0.5 counting 0.1 for the cost of the transaction.

I would not keep the loan for the full term of it just a fraction of time.

I dont understand the logic -

You borrow £1.00 to pay another loan off then get your £1.60 and pay the loan back, losing £0.10 leaving you with £0.50.

Or dont borrow £1.00, sell the property and get your £0.60 without any other fees.

Using your numbers as an example.

enthusiasticsaver

No I don't think your thinking is correct. What happens if it takes months to sell your flat? You are having to pay interest on the personal loan at more than double your mortgage rate. You are losing interest on your savings and having to make minimums on money transfer card. You will also have the money transfer fee to pay and it could damage your credit rating by having that much on unsecured borrowing as well as your mortgage which is normally seen as good borrowing and won't disappear off your credit record for a few months. Why do you need to repay the mortgage before it is actually sold?

enthusiasticsaver

Just to clarify you won't gain the full appreciation in your flat until it is actually sold and completed. Repaying the mortgage early makes no difference to that except your suggestion seems more expensive. As sal says you can use your savings and or 0% cards ideally with no fees to reduce the mortgage but you still won't gain the appreciation as it is tied up in your flat. I can't understand your logic.

sal_III

JohnS123 wrote: »

This is what I have in mind:

I would repay the loan within 90 days. Here is an example:
I borrow £1 and put this towards the mortgage. As the property appreciated 60% when the property sells this would now be worth £1.6. I would pay the loan back keeping the 0.5 counting 0.1 for the cost of the transaction.

I would not keep the loan for the full term of it just a fraction of time.

I don't think you understand how mortgages work. You didn't mention any amounts only %s so I will use a nice round numbers

Lets say you bought the property for £100'000 a while back with £20000 deposit and £80000 mortgage. You didn't specify if the mortgage is 50% of the total value today or if you have to repay 50% of the principal

Today the value of the property is +60% so £160000
Your outstanding mortgage is either 50% of the original amount so £40000, or 50% of the current value so £80000 (I will keep the second number in brackets below). When you sell the property for £160000, £40000(£80000) will repay the outstanding balance and you will pocket £120000(£40000)

If you go with your plan and payout the outstanding mortgage of £40000(£80000) with £10800(£21600) savings(27%) + £10800(£21600) CC(27%) + £18400(£36800) loan (46%), when you sell the property you will pocket £160000, but you will have -£10800(£21600) savings and + £29200(£58400) debt which is again £120000(£40000) net gain.

The difference is that in the first case you will have £40000(£80000) debt at 1.99% interest vs. £18400(£36800) debt at 4.4% in your scenario. You said you aim to repay the loan in 3 months, the interests incurred will be £132.74(£265.48) if you kept the mortgage vs £135.11(£270.19)

So even if you ignore all the costs with early repayment of the mortgage and hassle+cost of securing the CC/Loan debt you are still worse off by a couple of quid

getmore4less

shuffling the debt makes no difference you still owe the money and the net position is the same, makes no difference where the debt is.

What you want is the cheapest debt for the shortest period.

If you can't find the money cheaper than the mortgage keep the mortgage.

Some 0% CC money might work as long as the feed a very low(like £0).

foxy-stoat

I do not know of any 0% interest on money transfers with no fees, there is a few 4% interest no fee deals.

It makes no financial sense to reduce a low interest debt to higher interest loan, as for the money transfer option, we would need to know amounts to work out if the fees make it worth while.