Remortgage and paying off loan?

[PLuKE]

I have been reading but somewhat unsure?

I would like to wipe out a loan I have £8000, and my mortgage offer has just ended.

How would remortgaging and paying off a loan work? Is this bad long term? Does it affect my credit rating?

Kind regards
Luke

[softtop]

makes sense. No issues with credit rating

[Jugosaurus]

You’ll be paying interest on the 8k for the duration of the mortgage rather than just the term of the loan which id imagine would be shorter.
Potentially a smaller monthly outgoing so short term gain, but long term id suspect it would work out significantly more expensive

[gazapc]

Mortgages are generally cheap in % terms.

What's the % interest on the loan you want to pay off? It could be a no brainer or a stupid idea.

[Grrbang]

Very simple - prioritise paying off whichever charges the highest interest rate (presumably the loan).

I can't think that any other course of action would have any adverse consequences.

[BobToc]

Jugosaurus said:

Potentially a smaller monthly outgoing so short term gain, but long term id suspect it would work out significantly more expensive

Would be amazed if this was the case.

[PLuKE]

Thanks for the replies.

The interest rate is ok I am paying around £250 or so PCM.

I just want to bring my monthly costs down, with a change of circumstances.

My head says keep the loan separate!

[Grrbang]

PLuKE said:

I just want to bring my monthly costs down, with a change of circumstances.

Mathematically, the quickest way to bring monthly costs down is to pay off whichever loan charges the highest interest rate, which I would assume is the loan rather than the mortgage.

PLuKE said:

I am paying around £250 or so PCM.

When deciding between which loan to pay off to bring costs down, the PCM doesn't matter, only whichever charges the highest interest rate.

PLuKE said:

My head says keep the loan separate!

I'm not sure I follow what you mean by 'separate', as mathematically there is no such concept. All of someone's financial net worth is just a sum of positive and negative numbers, regardless of who they owe what to or which bank accounts they store their money in. Therefore, I would simplify the decision to just focusing on the loan that charges the highest interest rate, because that will get your outgoings down faster. Can't see any reason to recommend another course of action, based on the information available.

BTW, Reddit has a really useful flowchart on UKPersonalFinance that I find useful for managing my finances.

[DonkeyApple]

PLuKE said:

I have been reading but somewhat unsure?

I would like to wipe out a loan I have £8000, and my mortgage offer has just ended.

How would remortgaging and paying off a loan work? Is this bad long term? Does it affect my credit rating?

Kind regards
Luke

In simple terms just pay down the more expensive loan. However, the posts suggest that the reason for looking at this is because there is a squeeze on monthly disposable?

£250/month on £8k suggests it's a 3 yr loan around 8% or thereabouts?

If you put it onto the mortgage then assuming non junk status then your monthly funding cost will plummet as will the repayment amount. As others have pointed out, you are then switching to paying that interest for twenty years however you'd obviously aim to pay it off much sooner by utilising the mortgage overpayment facility.

Not sure why you'd worry about credit ratings unless instead of wanting to do this to clear down debt you're in fact wanting to do it to be able to load up with more?

[AndyAudi]

I’d be tempted to suggest lumping in with mortgage with a view to making overpayments as & when you could in replacement of loan repayments.

Couple of considerations though depending how far on mortgage is.

Remortgaging might incur a fee to revalue property if looking for more against it.

How close are you to getting a lower rate remortgaging by dropping a LTV banding? ( & could throwing an extra 8k on it mean you end up paying say an extra 0.5% on your whole mortgage…..)

[Halitosis]

If you don’t intend to take out another bank loan in the future, then yes increasing your mortgage and paying off the loan is best for your monthly cash flow.

[PLuKE]

Thanks for the replies.

The monthly drop in monthly payments would be very welcomed at the moment hence looking into it.

In regards to credit rating, I do not intend to get any loans out, I didn’t want any negative affects to my rating that was all.

I will have a look into it, and see what I can find.

Kind regards

[DonkeyApple]

PLuKE said:

Thanks for the replies.

The monthly drop in monthly payments would be very welcomed at the moment hence looking into it.

In regards to credit rating, I do not intend to get any loans out, I didn’t want any negative affects to my rating that was all.

I will have a look into it, and see what I can find.

Kind regards

I think the key is that if you can migrate the personal loan onto your mortgage for no additional costs then you will benefit from two things, a lower monthly interest charge and personal control over the repayment as you can reduce and increase that at your discretion but it would be worth checking for any repayment costs in that regard.

[wpa1975]

I have just done the same plus pulled some extra out to cover a new kitchen etc, seemed a no brainer to me the total mortgage is still a long way behind the house value.

Yes I am paying more for the mortgage but a lot less per month than the loan was costing.

[Largechris]

Grrbang said:

PLuKE said:

I just want to bring my monthly costs down, with a change of circumstances.

Mathematically, the quickest way to bring monthly costs down is to pay off whichever loan charges the highest interest rate, which I would assume is the loan rather than the mortgage.

PLuKE said:

I am paying around £250 or so PCM.

When deciding between which loan to pay off to bring costs down, the PCM doesn't matter, only whichever charges the highest interest rate.

PLuKE said:

My head says keep the loan separate!

I'm not sure I follow what you mean by 'separate', as mathematically there is no such concept. All of someone's financial net worth is just a sum of positive and negative numbers, regardless of who they owe what to or which bank accounts they store their money in. Therefore, I would simplify the decision to just focusing on the loan that charges the highest interest rate, because that will get your outgoings down faster. Can't see any reason to recommend another course of action, based on the information available.

BTW, Reddit has a really useful flowchart on UKPersonalFinance that I find useful for managing my finances.

As others have pointed out, that maybe a slightly misleading oversimplification. Remortgaging does incur fees for a start so everything needs to be factored in, not just relative interest rates.

[vulture1]

Halitosis said:

If you don’t intend to take out another bank loan in the future, then yes increasing your mortgage and paying off the loan is best for your monthly cash flow.

It negatively affects your credit paying off the loan early does it? I thought that would be a pretty neutral event

[Halitosis]

vulture1 said:

Halitosis said:

If you don’t intend to take out another bank loan in the future, then yes increasing your mortgage and paying off the loan is best for your monthly cash flow.

It negatively affects your credit paying off the loan early does it? I thought that would be a pretty neutral event

No not at all and my comment wasn't related to credit rating. As far as I'm aware early loan repayment would have a neutral or possibly positive impact on the OP's credit rating.
My reference to not taking out another loan relates to the fact some folk are easily tempted to start racking up debt again after a consolidation. Although the short term cash flow is improved via a consolidation, it's largely an exercise of kicking the can down the road

Edited by Halitosis on Monday 28th February 21:05