Can you use a personal loan to pay off a mortgage?
A personal loan can be used for many expenses, but is it a good idea to use one to pay off your mortgage? Let’s talk about it.
Technically, you could use a personal loan to pay part of your mortgage - but there are major downsides. The most important thing to remember is that personal loans aren't big enough to cover an entire mortgage, and the interest rates are usually higher than mortgage rates.
Why using a personal loan for a mortgage isn’t ideal
Well for one, you’ll get quoted higher interest rates - mortgage rates are typically 2-5%, while personal loan rates can be 8-15% or more! And secondly, they likely will have shorter repayment terms - personal loans must be repaid in 1-7 years typically, unlike mortgages, which have 20+ year terms. Lastly, there’s always the risk of rejection - lenders may see it as risky if you take out a loan to pay a secured debt (your mortgage).
Here are some better ways to pay off your mortgage faster
Overpay your mortgage - Many lenders allow you to make extra payments without penalties.
Remortgage for a better rate - Switching to a lower interest rate can reduce costs.
Use savings instead of borrowing - If you have cash savings, using them is better than paying loan interest.
When might a personal loan be worth it?
In very rare cases, a personal loan might help if you need a small lump sum to cover a final mortgage payment, or you have a high-interest mortgage, and the loan rate is lower. But in almost all cases, other financial strategies are better.
Using a personal loan to pay off a mortgage isn’t advisable due to higher interest rates and shorter repayment terms. Instead, consider overpayments or remortgaging to save money.
This blog is for informational purposes only and does not constitute financial advice. Please speak to a qualified financial adviser before making financial decisions.