UKC

My fixed rate mortgage has 3 years to go at 4.7%. I can get a personal loan of £10k at about 3.6%. Is there any way I can make this play to my advantage?

I can overpay £500 a month, but no more. There are very large financial penalties (and other reasons) why I can't buy myself out of my current deal and get a 2.5% mortgage. Sadly.

In my head it should work, but I can't work out how.

In reply to XXXX:

Feels like it should work. You need a spreadsheet to work out if it is actually worth it. 3.6% is very cheap for a personal loan, can you definitely get that?

In reply to The New NickB:

Sainsburys 3.7%
HSBC 3.9%

So a little higher. I can do the spreadsheet, but can anyone think of any pitfalls I might unwittingly fall into?

In reply to XXXX:
Check the fee for getting out of the mortgage early. There are 3 year fixed rates at

In reply to XXXX:

If you can only overpay £500 per month it will be difficult to make this work. unless you can find a loan that will give you the 3.7% and let you draw down £500 at a time.

I used the same idea in the old days when you could get 0% credit cards. tale a look at stoozing for more ideas http://www.stoozing.com/

Hmm, that should be less than 3%!!

In reply to XXXX:

Redeption penalties aside use any money you have in savings including isa's first before borrowing Peter to pay paul,current saving interest rates are a joke

Thanks all,

The fee is 4% of the balance, which is nearly £9k. Even so, it is actually financially beneficial now to remortgage and take the hit as I'll get the money back within the next fixed rate period. However, as I said there are other reasons why this wouldn't work, as in we now have another mouth to feed, a nursery to pay eye-wateringly high fees to and we are earning less as we're working less. So we probably wouldn't be approved for the new mortgage anyway.

Savings? What are they? If I had enough to save, I'd be overpaying the mortgage with it already.

In reply to XXXX:

If you have to take the personal loan out in one go, do you have space in your ISA allowance to put it in an ISA and draw that down each month until needed? You can currently get 1.35% on instant access, which is a bit pants, and you can't guarantee most rates beyond a year, but it can only work in your favour.

Edit: Without doing the same spreadsheet you will I can't say if it actually works out, but do put a third column in for the ISA if possible - assuming that the conditions of borrowing don't preclude this. I'm assuming you haven't used this year's ISA allowance as there's been sweet FA out there to make it worthwhile vs over-paying the mortgage.

In reply to XXXX:

Its more likely to be an issue of cash flow. Even though your mortgage expires in 3yrs it is likely amortized over a much longer period. Will your personal loan be amortized over the same period? If not can you afford to take the increased payments out of cash flow?

Also, what will secure your personal loan?

In reply to XXXX:
£10k at 4.7% over 20* years is £64 pcm.

£10k at 3.6% over 3 years is £293 pcm.

If you put the £10k into a bank account and pay £500 pcm off the mortgage and £293 pcm for the loan the £10k will run out after 12 or 13 months (£10k divided by £793pcm). If you get interest on the £10k tapering down to nothing over those 12 or 13 months it might mean the money runs out a few weeks later.

You now save £64pcm on the mortgage but must pay another 24 months at £293pcm on the loan. OUCH!!!!

I don't think you can pay off some of the mortgage quicker (3 years) without it costing more over those 3 years.

*a guess as I don't know how long your mortgage has to run

Repayment loan figures (arrangement fee option set to "No") from
http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator

Edit - as Minneconjou Sioux says - amortization.

In reply to elsewhere:
Correction, you only pay off £6k before the money runs out, so you only save about £36 pcm on the mortgage.

Northern Rock did what you suggest - borrow short term at low interest rates to finance long term loans at higher interest rates.
It works as long as you keep repaying the short term loan with another short term loan.
If fell apart when they couldn't get a new short term loan.