Should I overpay my mortgage with a loan?

flimsier

So a couple of months ago, I wrote off my car, and we decided to upgrade a bit plus we needed another car so our au pair could get the kids to school - we'd moved the kids to a school a few villages along.

I'm in the habit of overpaying the mortgage every month by £500-£800, but this simply needed a loan at this stage.

No problem, I thought, I'll stop overpaying the mortgage and overpay the loan. I decided to apply for £12k.

To my surprise, it was remarkably easy. Within about ten minutes I'd been accepted and the money was in my bank a couple of days later. The loan actually can't be overpaid, but is over 2 years at 1.99% interest (this is the cheapest I could find via one of those co-operative loan systems where you are basically borrowing from other people). So the £2k I didn't spend I overpaid the mortgage with.

The mortgage is in two parts. One part is £55k and is three years into a 10 year fixed at 3.69%. This is the part I usually over pay.

The other is about £160k and is a year into a 2 year fixed at 2.19% I think that we'll be able to fix this at below 3.69 in a year for a short period.

Anyway, it's been bothering me that I can borrow money (I don't know how much I would be able to) on a loan at a cheaper rate than my mortgage.

So why don't I take out as much as I can and overpay the mortgage (there is no penalty unless I pay it off) by that much.

I have no other debt. I use two credit cards for all spending and have done for many years, and I have never not paid them off that month.

Is there a downside to this plan? What am I missing or haven't considered?

[Deleted User]

It's unlikely you would get further borrowing at a low rate, certainly not anytime soon.

You may not be able to get any further borrowing at all, depending on your income.

flimsier

Thanks. Good point. I haven't tried. But if I can, anything else we haven't considered?

My income is £85k pre-tax and pension. My partner earns a bit under half that. We have three kids.

[Deleted User]

No reason not to try, although the savings are likely to be very small.

Also take into account any over payment limits or ERCs.

Finally, make sure any shift in monthly payments is manageable.

flimsier

Deleted_User wrote: »

No reason not to try, although the savings are likely to be very small.

Also take into account any over payment limits or ERCs.

Finally, make sure any shift in monthly payments is manageable.

Thanks. This is what I thought - nothing apart from the (pretty) obvious - makes sense to save nearly 2% I think, but the amount I can repay a month is quite important.

Thanks for replying.

A_Frayed_Knot

Slightly different to you but I applied and received a 0% CC, used it to the max and all money sitting in an account until Pay Off Day, think it was 3 years, still had about a year to go, then suddenly had my LBM, could I o/p my mortgage with the money sitting there, then instead of o/p my mortgage start building up the money before Pay Off Day

Worked out all calculations, of what I would normally o/p my mortgage monthly and instead put that back into an account for the Pay Off Day, a bit of a risk, and had to have a back up plan, so after all that was in place. Went for it.

So that's what I'm doing now, and on target. Just wish I had done it a lot sooner :mad: saving a packet on interest:D

flimsier

A_Frayed_Knot wrote: »

Slightly different to you but I applied and received a 0% CC, used it to the max and all money sitting in an account until Pay Off Day, think it was 3 years, still had about a year to go, then suddenly had my LBM, could I o/p my mortgage with the money sitting there, then instead of o/p my mortgage start building up the money before Pay Off Day

Worked out all calculations, of what I would normally o/p my mortgage monthly and instead put that back into an account for the Pay Off Day, a bit of a risk, and had to have a back up plan, so after all that was in place. Went for it.

So that's what I'm doing now, and on target. Just wish I had done it a lot sooner :mad: saving a packet on interest:D

I think this is the sort of thing I'm thinking of doing - using my good credit rating to get as much v cheap debt as I can and paying off the mortgage with that. It will require some working out but it's probably worth a few hundred pounds.