Overpay mortgage or personal loan?

Missdougal86 · 13 July 2017 at 8:03PM

Hi guys

This is my first post so please be nice! I am in a position where I can start making overpayments towards my debt. The biggest and the one with the highest interest rate is my mortgage. I also have a personal loan but the interest rate is about 0.5% lower. Usually it would be a no brainer and I'd pay off chunks of the mortgage because I am saving more in interest. However, if for some reason I was looking to get a credit card the thing visible on my credit account is the sum of my personal loan which may make me a less appealing candidate.

So I open it to fellow money savers. Which do I make overpayments on?

Thanks for your help!

gycraig_2 · 13 July 2017 at 8:30PM

If it's a long mortgage I'd over pay on the loan so I could have that money spare in a couple of months. Won't feel the benefit of over paying mortgage for years

ricky_v · 13 July 2017 at 9:07PM

From a maths point of view you'd be better off overpaying the mortgage as you'll be 1/2p a year better off for every £1 paid back.

If your mortgage isn't in a fixed period I would look at a remortgage as chances are you'll get a rate lower than the loan rate.

PeacefulWaters · 14 July 2017 at 7:37AM

ricky_v wrote: »

From a maths point of view you'd be better off overpaying the mortgage as you'll be 1/2p a year better off for every £1 paid back.

If your mortgage isn't in a fixed period I would look at a remortgage as chances are you'll get a rate lower than the loan rate.

The loan is the cheaper rate. So overpaying the mortgage is better use of funds.

getmore4less · 14 July 2017 at 8:20AM

Missdougal86 wrote: »

Hi guys

This is my first post so please be nice! I am in a position where I can start making overpayments towards my debt. The biggest and the one with the highest interest rate is my mortgage. I also have a personal loan but the interest rate is about 0.5% lower. Usually it would be a no brainier and I'd pay off chunks of the mortgage because I am saving more in interest. However, if for some reason I was looking to get a credit card the thing visible on my credit account is the sum of my personal loan which may make me a less appealing candidate.

So I open it to fellow money savers. Which do I make overpayments on?

Thanks for your help!

put up a list of all your debts, amount, term, rate, payment?

why do you need more credit?

Missdougal86 · 14 July 2017 at 12:11PM

Hello,

Thanks for your comments. At the moment and for the foreseeable future I don't need (or want) more credit. The aim is to get as close to debt free as possible eventually. The mortgage is fixed for another two years so no need to remortgage at the moment.

Mortgage last year was around £93k over 31 years @ 3.44% (not sure what the figure is at the moment as I won't get the annual statement for a while yet).

Loan is £20k over 5 years @ 2.9%.

ViolaLass · 14 July 2017 at 1:07PM

If you don't actually need the credit card then there's no reason at all to not overpay the mortgage.

Missdougal86 · 14 July 2017 at 4:28PM

Hello

Thanks for your comments. There is no need for credit at the moment, but if at some point towards the end of my fixed term mortgage (approx. 2 years' time) I sell my flat to move in with my boyfriend and I get put on his mortgage does it actually look better as a candidate for a joint mortgage if I have less debt i.e. a smaller personal loan.

Hope that makes sense?

engineer_amy · 14 July 2017 at 4:46PM

I suppose it would depend what order you do things in - if you were to sell your flat and move in with the partner, then apply for the mortgage, you could use whatever equity you have from the sale of your flat to pay off the loan (or part of the loan), thus reducing the debt.

bris · 16 July 2017 at 11:59PM

If it's a long mortgage then any overpayment will have a huge affect on the final interest paid. If it's a decent amount then could save you thousands in the long run and finish the mortgage earlier.

Overpaying a personal loan would save you peanuts in the over all grand scheme of things if it's only for 2-5 years.

PeacefulWaters · 17 July 2017 at 7:59AM

bris wrote: »

If it's a long mortgage then any overpayment will have a huge affect on the final interest paid. If it's a decent amount then could save you thousands in the long run and finish the mortgage earlier.

Overpaying a personal loan would save you peanuts in the over all grand scheme of things if it's only for 2-5 years.

Although if you overpay the more expensive loan and, when it's repaid then allocate the whole loan payment, including overpayment, to the mortgage you'll be better off overall.

Overpay mortgage or personal loan?

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free