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  • FIRST POST
    • maryb
    • By maryb 24th Sep 17, 7:49 PM
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    maryb
    Overpay mortgage or clear student loan?
    • #1
    • 24th Sep 17, 7:49 PM
    Overpay mortgage or clear student loan? 24th Sep 17 at 7:49 PM
    My DD has a student loan pre 2012 with repayments of about £270 per month. She also has savings (thanks to generous grandparents) which could have cleared the loan but we thought it would be better to keep the loan and the savings for all the reasons Martin mentioned. She is now buying a flat and because she has a large deposit she qualifies for a really good fix for five years. She could make up to 10% overpayments each year without penalty and would actually have spare income to do so, but it seemed to me that now she has a mortgage the advantages of don't earn don't pay in relation to the student loan no longer apply in the same way -she has big outgoings which have to be paid regardless.

    So I am thinking that she might be better off throwing spare cash at clearing the student loan during the period of the fix. It carries a higher rate of interest and if she can clear it, that would free up the monthly repayments to throw at the mortgage

    Am I thinking along the right lines or am I missing anything? I should add that she is in that pay range where she would repay in full over 30 years and there are no life changing events on the horizon like marriage/babies where she might not have any income

    I'd be grateful for input to clarify my and her thoughts
    It doesn't matter if you are a glass half full or half empty sort of person. Keep it topped up! Cheers!
Page 1
    • Dobbibill
    • By Dobbibill 24th Sep 17, 9:53 PM
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    Dobbibill
    • #2
    • 24th Sep 17, 9:53 PM
    • #2
    • 24th Sep 17, 9:53 PM
    Have you read this?

    http://www.moneysavingexpert.com/students/student-loans-repay

    The general advice on this link is not to pay SLC - paying the mortgage is a better use of her savings - that's got to be paid even if she loses her job/has no income whereas a the student loan won't.

    Hopefully there will be others along shortly with more knowledge who can share their thoughts too.
    I'm a Board Guide on the Energy, Student Money Saving, UK Armed Forces and
    Local Money Saving - Wales boards. I'm a volunteer to help the boards run smoothly, and I can move and merge posts there.
    Board guides are not moderators and don't read every post. If you spot an abusive or illegal post then please report it to forumteam@moneysavingexpert.com. Any views are mine and not the official line of MoneySavingExpert.com.


    A person who never made a mistake, never tried anything new.
    • maryb
    • By maryb 25th Sep 17, 3:04 AM
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    maryb
    • #3
    • 25th Sep 17, 3:04 AM
    • #3
    • 25th Sep 17, 3:04 AM
    Thank you, yes and that is why we kept her savings and the student loan. But now she has used all her savings on having a bigger deposit. If she loses her job the fact that she wouldn't be making SLC repayments wouldn't really help much, she would still have to find the money for her mortgage each month rather than paying it out of savings until she gets another job.

    She has a 1.9% fix for five years, and if base rates rise, which everyone thinks they will, that could easily end up being a good bit less than the rate on her student loan even though she is on "just" the lower of RPI or base rate plus 1%

    She wants to make overpayments but it seems more logical to snowball what could be the higher interest rate debt first. On my calculations she wiould be in that group of graduates who end up paying the most on their student loans. She has a very good salary but it is unlikely to increase dramatically in future. She will earn more than enough to pay it off in full before 30 years are up but not so much that she clears it quickly so there would be a LOT of interest
    Last edited by maryb; 25-09-2017 at 3:14 AM.
    It doesn't matter if you are a glass half full or half empty sort of person. Keep it topped up! Cheers!
    • maryb
    • By maryb 25th Sep 17, 3:51 AM
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    maryb
    • #4
    • 25th Sep 17, 3:51 AM
    • #4
    • 25th Sep 17, 3:51 AM
    Sorry, got the 30 years bit wrong as she is pre 2012 but the logic still applies, she will earn enough to clear her loan - eventually.

    I have a different decision to make with younger daughter who started Post 2012. She now wants to do a masters and has to decide whether to apply for a postgraduate loan. We could advance her the equivalent amount of the loan now so she wouldn't have to borrow, but in return we would not be able to help her as much with an eventual deposit in a few years time. But although student loans don't count as outstanding debt, the fact that the repayments on the postgrad loan are taken in addition to the undergrad loan means she would be paying 15% above threshold. I'm trying to get my head around whether it would be better to have a smaller deposit but better affordability on the income test
    It doesn't matter if you are a glass half full or half empty sort of person. Keep it topped up! Cheers!
    • silvercar
    • By silvercar 25th Sep 17, 8:37 AM
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    silvercar
    • #5
    • 25th Sep 17, 8:37 AM
    • #5
    • 25th Sep 17, 8:37 AM
    If she loses her job the fact that she wouldn't be making SLC repayments wouldn't really help much, she would still have to find the money for her mortgage each month rather than paying it out of savings until she gets another job.
    The point is that if she lost her job she wouldn't need to make student loan repayments. So her savings could be used to pay the mortgage, whereas if they had been used to reduce the student loan they wouldn't be available to her.

    She will earn more than enough to pay it off in full before 30 years are up but not so much that she clears it quickly so there would be a LOT of interest
    I think you need to take a view. If she has some savings kept back for a rainy day and her employment prospects are safe for the future and she is likely to repay all the loan with hefty interest then it makes sense to pay off the student loan before the interest builds up.
    • silvercar
    • By silvercar 25th Sep 17, 8:39 AM
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    silvercar
    • #6
    • 25th Sep 17, 8:39 AM
    • #6
    • 25th Sep 17, 8:39 AM
    But although student loans don't count as outstanding debt, the fact that the repayments on the postgrad loan are taken in addition to the undergrad loan means she would be paying 15% above threshold. I'm trying to get my head around whether it would be better to have a smaller deposit but better affordability on the income test
    My personal opinion would be to take the loan and consider repaying when she has started on her career and you have more information to judge on whether she will eventually repay all of it.
    • maryb
    • By maryb 25th Sep 17, 9:23 AM
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    maryb
    • #7
    • 25th Sep 17, 9:23 AM
    • #7
    • 25th Sep 17, 9:23 AM
    Silver car, she had to use all her savings on the deposit so she has no savings just equity in the flat. That's why I thought the advantage of keeping the student loan is no longer there
    It doesn't matter if you are a glass half full or half empty sort of person. Keep it topped up! Cheers!
    • Dobbibill
    • By Dobbibill 25th Sep 17, 4:57 PM
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    Dobbibill
    • #8
    • 25th Sep 17, 4:57 PM
    • #8
    • 25th Sep 17, 4:57 PM
    Now that she has no savings left - my thoughts would be instead of overpaying the mortgage or the student loan, she needs to build her savings back up. This will make sure that if the worse happens she can at least cover her essential bills like mortgage, heating, eating etc

    Absolutely pointless overpaying on anything if when life throws a curve ball she is up the proverbial creek so to speak.
    I'm a Board Guide on the Energy, Student Money Saving, UK Armed Forces and
    Local Money Saving - Wales boards. I'm a volunteer to help the boards run smoothly, and I can move and merge posts there.
    Board guides are not moderators and don't read every post. If you spot an abusive or illegal post then please report it to forumteam@moneysavingexpert.com. Any views are mine and not the official line of MoneySavingExpert.com.


    A person who never made a mistake, never tried anything new.
    • Lokolo
    • By Lokolo 25th Sep 17, 5:15 PM
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    Lokolo
    • #9
    • 25th Sep 17, 5:15 PM
    • #9
    • 25th Sep 17, 5:15 PM
    OK this is my view as your DD seems very like how I've been!

    - a 5 year fix on a flat seems OTT. I did the same and sold after 4 years to purchase a house. Had to pay the ERC which was quite large. Now I think "get a 2 year fix to start, if I still see myself in here long term, then I'll get a longer fix". Does she really want to tie herself in for 5 years? A lot can change (assuming here) in your 20s, and VERY quickly! A couple of promotions, a new partner, kids, marriage etc.

    - £270 a month is what I was repaying, thats £3k a year. After 7 years her loan will be paid off

    What I would do

    - Not overpay SLC yet
    - Get some savings, we're talking around £2/3k+ to start with. She will then have some emergency savings in case anything bad happens
    - Overpay as much as she can with the mortgage until
    - When she gets close to ending the student loan (<£5k), then overpay SL rather than mortgage. Switch to DD and get it over and done with.

    I actually think it could all tie in nicely.

    In 5 years time she will have OP'd the mortgage by a decent amount, has additional savings and will have paid off the SL.
    Last edited by Lokolo; 25-09-2017 at 5:17 PM.
    • maryb
    • By maryb 25th Sep 17, 5:44 PM
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    maryb
    Thanks Lokolo that's really helpful. Without going into details the flat is in such a good location that even if life changed it would be worth renting out rather than selling to move. And her job is as safe as any job can be though her office may well relocate ( one reason why the location is so good, it is accessible to anywhere)
    It doesn't matter if you are a glass half full or half empty sort of person. Keep it topped up! Cheers!
    • secondtoughest
    • By secondtoughest 25th Oct 17, 3:48 PM
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    secondtoughest
    I'm in a similar position.

    I pay around £200 per month SLC repayments through salary deductions and am now in the position to overpay by £500 per month. This will mean I can clear my outstanding balance in a year. I'm on one of the better student loans, taken out in the late 90s.

    I am mulling over the alternative, which is to make overpayments on my mortgage. My mortgage is around £53k, on a two year fix at 1.65%.

    I've read all the advice to overpay my mortgage instead but I think it will give me a target and a sense of achievement to be able to pay back my SL in a year. Once this is done, I'll then have an extra £200 in my salary every month which I can use on mortgage overpayments.

    I hear conflicting advice from my friends who are all 'do what Martin says' and this advice has generally held me well in the past but I'm keen to unlock that extra cash per month and just get the thing paid off.

    Thoughts?
    • silvercar
    • By silvercar 25th Oct 17, 4:46 PM
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    silvercar
    I hear conflicting advice from my friends who are all 'do what Martin says' and this advice has generally held me well in the past but I'm keen to unlock that extra cash per month and just get the thing paid off.
    Martin say's don't pay it off because you may not ever have to. I don't think he has said not to pay off early when it is virtually inevitable that you will do so in time.
    • Cash-Cows
    • By Cash-Cows 29th Oct 17, 7:13 AM
    • 170 Posts
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    Cash-Cows

    Thoughts?
    Originally posted by secondtoughest
    Start your own thread rather than highjack someone else's.
    • Cash-Cows
    • By Cash-Cows 29th Oct 17, 7:21 AM
    • 170 Posts
    • 122 Thanks
    Cash-Cows
    Thank you, yes and that is why we kept her savings and the student loan. But now she has used all her savings on having a bigger deposit. If she loses her job the fact that she wouldn't be making SLC repayments wouldn't really help much, she would still have to find the money for her mortgage each month rather than paying it out of savings until she gets another job.

    She has a 1.9% fix for five years, and if base rates rise, which everyone thinks they will, that could easily end up being a good bit less than the rate on her student loan even though she is on "just" the lower of RPI or base rate plus 1%

    She wants to make overpayments but it seems more logical to snowball what could be the higher interest rate debt first. On my calculations she wiould be in that group of graduates who end up paying the most on their student loans. She has a very good salary but it is unlikely to increase dramatically in future. She will earn more than enough to pay it off in full before 30 years are up but not so much that she clears it quickly so there would be a LOT of interest
    Originally posted by maryb
    If she's a higher rate tax payer or will be soon then paying into a pension would perhaps be more efficient. A £100 into a pot would only cost £60. You would expect investments to grow faster than the 1.9% that she is paying out of her taxed income.
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