Is it worth taking out a seven year loan to pay off a £30000 mortgage with 18 years left to pay. What are the pros and cons, seems like a good idea to me ??
2007-01-24 06:33:24 · 9 answers · asked by Craig W 1 in Business & Finance ➔ Other - Business & Finance
You can bet your life that the interest rate on the personal loan will be higher than the mortgage rate so even if the term is shorter the amount you pay might be just as high.
You might do better by finding a mortgage that is flexible enough for you to make overpayments and reduce the term to 7 years that way instead. A flexible mortgage is good because you've got the security of being able to stop overpayments if you need to and re-start them when you can.
I've got an offset mortgage that allows me to offset savings against the sum borrowed which means I only pay interest on the remainder and we make an overpayment every month. It's only small (less than £100) but it's making a huge difference to the term of the mortage.
Reduce the term and you reduce the interest you're paying over the course of the mortgage.
If you switch to a personal loan with a higher rate of interest instead, you'll simply end up paying as much as you would for your current mortgage over the longer term (or thereabouts).
Have a look on the Motley Fool website mortgage comparison pages - also, read their pages on getting out of debt, it will change the whole way you look at things (and it's really well written and easy to read).
2007-01-24 06:57:24 · answer #1 · answered by muppetofkent 3 · 0⤊ 0⤋
If u took out a personal loan 2 pay off a mortgage of that size would be crazy. The repayments alone will be horrendus. If u have that sort of money to pay that size of a loan what I would do is, carry on paying the mortgage and the money that u would have paid for the loan minus the mortgage payment would stash it away each month in a high intrest account or ISA. Then when u have enough money to pay off the loan, take it out of ur savings and pay it off, but I was once told that if I wanted to do the same, then it was a good idea to keep a small mortgage open.
Hope this helps.
2007-01-24 06:57:23 · answer #2 · answered by DIAMOND_GEEZER_56 4 · 0⤊ 0⤋
Ah - I think there is a better way...
Instead of taking out a loan, find the repayment amount on that loan each month. Carry on paying the mortgage BUT, also put the difference between the two into a high interest savings account. Actually - an ISA may be better. When the savings account balance is more than the mortgage amount, pay off the mortgage.
Alternatively - even more tax efficient is to set up an OFFSET mortgage. Then you also avoid tax on the interest in the savings account. EG: First Direct or Virgin One.
2007-01-24 06:50:43 · answer #3 · answered by MayhemUK 2 · 0⤊ 0⤋
The interest rate is the biggest factor.
A personal loan would probably be at a fixed rate. Your mortgage rate could fluctuate depending on the type of mortgage you have.
Why not remortgage if you want to reduce the term of your mortgage.
Also when applying for a personal loan you need to give the purpose of the Loan. Most good established lenders would query a loan with the purpose of repaying a mortgage.
2007-01-24 06:47:00 · answer #4 · answered by angie 5 · 0⤊ 0⤋
As others have said, check the interest rate. You are generally better off with a mortgage. However, unless you have a fixed rate mortgage, you will be able to "overpay" your mortgage each month. This will mean that you will pay the sum off quicker and thereby pay less interest. If you have a fixed rate mortage then check the terms and conditions and see if you can make overpayments on that.
2007-01-24 06:44:45 · answer #5 · answered by annemumborumbo 2 · 0⤊ 0⤋
look at how much you will be paying on the personal loan per month and then look at at how much you can take off your mortgage term by paying the same to the mortgage.
as the mortgage interest rate should be lower the mortgage should not take 7yrs to pay off at the same payment.
2007-01-24 06:42:28 · answer #6 · answered by bassmonkey1969 4 · 0⤊ 0⤋
You have to analize if you end up paying more money due to a higher interest rate, or a lower monthly payment. One of the good thing about a mortgage is that the interest you pay is tax detuctible, you have to take that in consideration too.
2007-01-24 06:42:53 · answer #7 · answered by Frank the tank 7 · 0⤊ 0⤋
Why not just re-mortgage over a shorter period? Mortgage rates should be lower than loan rates. Shop around, try a price comparison site and compare the two.
http://www.moneysupermarket.com/default.asp?Source=MS
2007-01-24 06:43:48 · answer #8 · answered by forge close folks 3 · 0⤊ 0⤋
Depends on the interest rates. Do the maths first. Don't forget compound interest.
2007-01-24 06:41:06 · answer #9 · answered by Anonymous · 0⤊ 0⤋
What is the interest rate like in comparison?
2007-01-24 06:39:05 · answer #10 · answered by Anonymous · 1⤊ 0⤋