Getting a loan to use as overpayment 30 September 2022 at 5:02PM in Mortgage-free wannabe 3 replies 191 views

DreamerUK

Hello everyone.

I just want to ask some advice really.

A little about my circumstances first. I'm currently making overpayments on my mortgage at just over two times my minimum payment. So in effect I'm making just over three minimum payments a month. My mortgage is a tracker as I'm paying over 10% a year as overpayment a year, I couldn't do that on a fixed rate.

I've been doing this for just over two years and have already greatly reduced my debt.

But I've got to thinking, with the interest rates due to rise to 6%, is it worth getting a loan for say 25k at a fixed rate of 3.6% and use that as an over payment?
This will reduce my mortgage by just over a third and as it's a fix rate, it will work out cheaper over the long run.

I realise my outgoings will decrease as I will now have a loan payment to make each month, so my overpayments will decrease but even with that it seems to make mathematical sense.

Am I missing something or does that seem a good option?

Thank you for your time.
Ben

powerspowers

I wouldn’t. 

It takes away flexibility and a safety net, you could choose/need to stop the OPs temporarily or altogether. If you had a loan you wouldn’t be able to do that. 

There were fixes where you can overpay more than 10%- YBS had a five year fix with a 50% op limit in June, whether it exists at the moment is another story!

good luck with your mortgage free journey 

DreamerUK

Hi Powerspowers

Thank you for answering my question.

That make sense but even with the extra loan payment, I'll still have almost £1k a month spare which I will be using for additional payments or not if an emergency happens (although I also have an separate emergency fund for that).

With this plan, I should be debt free in less than five years. 

Thriftmaster1973

I personally wouldn't go down that road of taking on extra debt.

It is basically borrowing off Peter to pay Paul.