|I just saw a TV ad for mortgages, and a Nomic-style legal scam caught my eye. Can anyone poke a hole in this plan for instant free money? The Chelsea Building Society offers a mortgage that's a fixed rate (the rate is largely irrelevant), the arrangement fee is £545, you get cashback of 6% of the loan amount when you make your first monthly payment, and there's a 5% early repayment fee. If you'd like to play along at home and work out the scam for yourself, you now have all the information, don't read the next paragraph.|
So, let's say you borrow £150000 on this mortgage. You're down £545 for the arrangement fee. You wait a month, there's £811 interest, so you're down £1356 total. You get your 6% cashback of £9000, so now you're up £7644. Now you pay off the entire rest of the borrowed amount, which incurs a 5% penalty of £7500, and ta-da, you're up £144 at the end of the transaction. For each additional £10000 you borrow with this scam, you get an extra £46 absolutely free. But wait, there's more! While you've borrowed the £150000, you could put it in some sort of reasonable interest bearing account, thus offsetting around half of the one-month interest penalty, which makes your scam-money £71 per £10000, which breaks even at borrowing £77000, and, eg. puts you up about £500 if you borrowed £150000.
The catch, of course, is that you need to be able to get the mortgage for the large amount without actually buying a house with it at the same time. But still, comical numbers.