Repaying the rest of your mortgage with a personal loan is generally not advisable, and it’s important to consider several factors before deciding to pursue this option:
- Interest rates – personal loans typically have higher interest rates compared to mortgage loans. Repaying your mortgage with a personal loan could result in paying significantly more interest over the long term, potentially increasing the overall cost of borrowing
- Loan terms – personal loans often have shorter repayment terms compared to mortgages. While mortgage loans are typically repaid over 15 to 30 years, personal loans may have repayment periods ranging from a few months to several years. Repaying your mortgage with a personal loan could result in higher monthly payments and a shorter repayment period, which may not be feasible for your budget
- Risk of default – personal loans are unsecured debt, meaning they are not backed by collateral such as your home. If you’re unable to repay the personal loan, you could risk defaulting on the loan and facing financial consequences, such as damage to your credit score, collection actions, and potential legal proceedings
- Impact on credit score – taking out a personal loan to repay your mortgage could affect your credit score. Opening a new credit account and carrying high levels of debt relative to your credit limit can negatively impact your credit score. Additionally, if you close your mortgage account after repaying it with a personal loan, it could also affect your credit score by reducing the average age of your credit accounts
- Alternative options – before considering repaying your mortgage with a personal loan, explore alternative options for managing your mortgage debt. For example, you could consider refinancing your mortgage to obtain a lower interest rate or extending the repayment term to reduce monthly payments. Additionally, you could explore options for making extra over payments on your mortgage to pay it off faster without incurring additional debt
Repaying the rest of your mortgage with a personal loan is generally not recommended due to the higher interest rates, shorter repayment terms, and potential risks involved. It’s important to carefully evaluate your financial situation, consider alternative options, and seek professional advice from financial advisors or mortgage experts before making any decisions regarding your mortgage debt.
Please call 023 8235 2300 and one of our consultants will then be able to advise you on your situation.
