Would you take out a credit card to leave mortgage early?

[LaraWearsZara]

2 options...

1. Take out a credit card to pay our £5k early repayment charge and fix at a new rate of 4.1% which will increase our mortgage by £320 a month or

1. Do nothing and pray to God that in October 2023 when our fixed rate of 1.3% ends we won't be unable to afford our house

YABU - Do nothing and sit tight
YANBU - Take the credit card and jump ship now

Some providers offer better mortgage rates sub 60% LTV so it might be worth focusing on getting that down a bit.

Below 60% LTV the rates don’t seem to change much as the lender already has certainty there will be enough to cover the loan.

Speak to London & Country. There advisors are brilliant and they get exclusive rates from lenders. Their service is free to you.

i expect they’ve been dealing with this type of query quite a lot lately so IMO they’d be your best bet.

I'd talk to the bank, perhaps the might agree to longer term fixed deal with reduced early repayment.
I'm a bit shocked at such a low mortage rate. What did you calculate your maximum mortgage payments you could afford when doing affordability?

Alot can happen in a year, so I would sit tight until Jul 2023 and re-assess.
In meantime, don’t overpay the mortgage. Put the difference in savings so you can cover any repayment penalty or even buy down the interest rate when you fix again starting Oct 2023. Getting a credit card for these is madness.

Don’t take out any new finance deals for cars/furniture/mobile contracts etc.

I don’t agree with buying contact lenses online as most of the sites have been caught selling counterfeit lenses. Especially as you have complex prescription with high myopia. It’s not something I would skimp on.

I wasn't allowed to pay the erc with a credit card, which I would ha

I wasn't allowed to pay the erc with a credit card, which I then could have balance transferred onto a 0percent credit card. The bank would only accept cash, no credit.

6 months ago? Yes, we paid £2k to do 10 years fixed at 2.19% (and as a PP said, no, you can't add to the mortgage in most cases). Now? I wouldn't.

Interesting, not something I'd even considered but I guess I understand their reasoning. Thanks!

I honestly don't remember. We are 1 year into a 2 year fix with TSB. It was all arranged by a financial advisor, who is currently on holiday in the Far East 😐 our affordability was good and there were no concerns. Both of us have always had credit ratings of 999 etc. Never missed a payment for anything.
When he was checking our affordability childcare was a big topic as we were paying a lot a month for it but it was just about to drop so he'd said we had that extra money coming in. Just didn't consider that extra money would be swallowed up in v High price rises across the board if I'm honest

Just popped on to make the same point about paying an ERC with a credit card. Don't think you'd be able to, as generally you're not allowed to pay credit with credit for stuff like that. So worth checking this.

@Icanstillrecallourlastsummer

Thanks for this, I'm really sorry it sounds important but I don't fully understand what you mean. Can you explain again? So sorry. Do you mean that in order for the proposal to buy our way out and move to a new rate to benefit us, we would need to be on a fix of more than 7% this time next year?

Yes.

The way to look at it is if you borrow a further £5k now to move to the 4.1% deal, over the next 5years it has to save you at least £5k plus 18 months of the difference between your current rate and 4.1%. To achieve that interest rates would need to be at least 7%.

Another way of looking at it is if you can afford repayments of 4.1% plus repayments on the £5K would you be better using the repayments on the £5 as mortgage payments?

Thanks @Princessglittery I think I get it. So if you were us you'd stick as we are, and try and pay more off the mortgage? Or put that extra money for the next year in our ISA?

That’s exactly what I was trying to say up there. Only put it in an ISA if you can get an interest rate higher than the one on your mortgage.

What you are saying is you can afford now to increase your mortgage payments to the 4.1% rate plus repayments on £5k.

You have 18 months at 1.3% where the additional money could be used to reduce your mortgage so you are paying interest on a lower amount.

£980 - £750 = £230 x 18 = £4,140 so instead of interest on £204,500 It’s interest on c£200,000.

But you are also overpaying I.e. 750 -£658 = £92 x 18 = £1,656.
That takes it to c£198,500.

Then there are the repayments on the £5k @c£85 per month assuming 0% interest. £85 x 18 = £1,530 =c £197,000 outstanding balance.

If you can find £750 + £230 + £85 = £1,065 a month now you will be reducing the amount owed and will have headroom if rates rise. Being reasonable I would go for £1000 a month.

No, I mean for it to recoup the money you are spending you would need interest rates to be and remain at 7% or more after you original 18 months expire. If you can, in 18 months, get a mortgage for less than that you will be out of pocket by paying out now.

Basically it's a lot you will need to claw back for it to be worth the outlay (ERF and extra payments), and I wouldnt' do it especially if it means going into more debt (it sounds like you have plenty). What I would do is overpay the difference (£320), obviously subject to any restrictions in your mortgage agreement, and get your loan amount as small as possible before you remortgage.

Okay great thanks. One thing I don't understand from both thr above comments is the 18 month references. Our mortgage expires Oct 2023... what am I missing? Thank you again

oh sorry, thought iwas longer. Must be confusing it with one of the other panicky posts about paying huge redemption fees to get out of mortgages that are on here today. 12 months then.

Sorry I must have confused you with a different poster. So multiply by 12 months instead.

I don't like the idea of paying for credit with credit.
Unless you were guaranteed a windfall or inheritance or maturing of an investment.

Start cutting down extras and plough that money into the mortgage. Do you have to wear contact lenses everyday? I wear my glasses and only wear contact lenses when I'm going properly out or a wedding etc.

Could the kids drop a club each and have a movie night in or 'games night' instead of they need entertainment.
Mobiles can be dropped yo Sim only etc.
Just get those extra £ into your mortgage and aim to pay that £5k you were going to borrow into the mortgage.