Plan 2 Student Loan
Discussion
Somebody I know has a Plan 2 Student Loan. They are well into the 40% tax rate so I think that means they're paying interest of RPI + 3%. They also have a BTL which has no mortgage on it.
Surely it makes sense to mortgage the BTL and pay 3%-5% (plus get a 20% interest credit against their BTL income) and use the lump sum to pay off the Student Loan?
It seems way too simple so maybe I'm missing something?
Surely it makes sense to mortgage the BTL and pay 3%-5% (plus get a 20% interest credit against their BTL income) and use the lump sum to pay off the Student Loan?
It seems way too simple so maybe I'm missing something?
JoshSm said:
It does look simple unless there's something really not obvious - borrow cheaper money to repay expensive loan penalty free?
Guess the issue could be taking out the mortgage when the loan is still outstanding.
I agree - that's what I'm wondering as well.Guess the issue could be taking out the mortgage when the loan is still outstanding.
They could probably borrow some money from BOMAD but then they wouldn't get any tax relief, and the parents would lose out on investment income.
I could suggest they pay their parents 7% but given how well the stock markets have been performing recently the parents would still be worse off
If they'd otherwise clear the loan naturally through their regular repayments (which I assume is the case if they're well into 40% tax) then the rate differential is compelling. If not and it'll just get written off at 30yrs anyway then whatever the "interest rate" is til then is irrelevant and refinancing it with a mortgage would offer no real benefit.
Besides that there's obviously downside risk as you're converting what's basically a time-limited extra income tax charge with very favourable terms into a permanent enforceable debt. And the inflation risk is asymmetrical in that with the student loan you're effectively sharing it with the govt whereas with the mortgage it's fully yours.
Besides that there's obviously downside risk as you're converting what's basically a time-limited extra income tax charge with very favourable terms into a permanent enforceable debt. And the inflation risk is asymmetrical in that with the student loan you're effectively sharing it with the govt whereas with the mortgage it's fully yours.
NowWatchThisDrive said:
If they'd otherwise clear the loan naturally through their regular repayments (which I assume is the case if they're well into 40% tax) then the rate differential is compelling. If not and it'll just get written off at 30yrs anyway then whatever the "interest rate" is til then is irrelevant and refinancing it with a mortgage would offer no real benefit.
Besides that there's obviously downside risk as you're converting what's basically a time-limited extra income tax charge with very favourable terms into a permanent enforceable debt. And the inflation risk is asymmetrical in that with the student loan you're effectively sharing it with the govt whereas with the mortgage it's fully yours.
I’ve asked them to get an up to date redemption figure from the SLC but given that fees were only £3k per annum when they were at Uni and they’re currently paying back about £4k per annum I genuinely have no idea why it isn’t all paid off already, they’re in their early 30s Besides that there's obviously downside risk as you're converting what's basically a time-limited extra income tax charge with very favourable terms into a permanent enforceable debt. And the inflation risk is asymmetrical in that with the student loan you're effectively sharing it with the govt whereas with the mortgage it's fully yours.
Are you sure? Plan 2 would have been when fees went up to £9k so 2012-13 onwards.
If they had that for tuition fees + presumably a few grand in maintenance loans each year they could pretty conceivably have graduated with knocking on £40k of "debt". Then you have the fact that interest starts accruing from day one of uni, then continues accruing through the first few years working when likely lower salary means much smaller repayments and barely chipping away at the capital, if at all. I'd be surprised if it wasn't a pretty common position among their peers of similar age and career/salary trajectory.
If they had that for tuition fees + presumably a few grand in maintenance loans each year they could pretty conceivably have graduated with knocking on £40k of "debt". Then you have the fact that interest starts accruing from day one of uni, then continues accruing through the first few years working when likely lower salary means much smaller repayments and barely chipping away at the capital, if at all. I'd be surprised if it wasn't a pretty common position among their peers of similar age and career/salary trajectory.
Countdown said:
I ve asked them to get an up to date redemption figure from the SLC but given that fees were only £3k per annum when they were at Uni and they re currently paying back about £4k per annum I genuinely have no idea why it isn t all paid off already, they re in their early 30s
I had a few years where HMRC did not tell the SLC that I was paying for my loan so the balance wasn't going down and I know a few people who had paid it off but the SLC didn't tell HMRC so it kept coming out of their payslips for a long time afterwards.Panamax said:
Countdown said:
Somebody I know has a Plan 2 Student Loan. They are well into the 40% tax rate so I think that means they're paying interest of RPI + 3%.
They also have a BTL which has no mortgage on it.
Presumably a founder member of the Rachel Reeves fan club.They also have a BTL which has no mortgage on it.
BAMoFo said:
Panamax said:
Countdown said:
Somebody I know has a Plan 2 Student Loan. They are well into the 40% tax rate so I think that means they're paying interest of RPI + 3%.
They also have a BTL which has no mortgage on it.
Presumably a founder member of the Rachel Reeves fan club.They also have a BTL which has no mortgage on it.
It was originally rented to two brothers. I believe one brother has moved out and the other’s girlfriend has moved in.
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