Advice please on overpaying 3 part mortgage

NewlyFrugalMumof3

Hi everyone.
I've been following many of these threads now for several months and they have given me much inspiration. I am determined, as I am the more money savvy half of my OH and me, to reduced our mortgage and cut our outgoings as much as poss.
I would be very grateful if anyone can advise me. I have been regularly overpaying our mortgage for past 3 months (and also made extra capital payment in Jan this year of £4K). Its in 3 parts and is a repayment mortgage:

Balances
Part 1: £55,397.83 as at 1 Aug 08 - overpaying £70/month - Term 22 years
Part 2: £61,264.91 as at 1 Aug 08 - overpaying £80/month - Term 22 years
Part 3: £24,517.07 as at 1 Aug 08 - overpaying £10/month - Term 15 years
TOTAL:£141,179.81:eek: :eek:

Parts 1 & 2 are at 5.54% - fixed until Nov 2012
Part 3 is at 6.24% - fixed until Feb 2011

I have rebudgeted and we can squeeze £200 spare each month, which I was going to put into savings account. However, have decided to have a bash at really reducing mortgage, so want to overpay by extra £140 - totalling £300 overpayment each month. However, not sure whether to overpay parts 1 & 2 mostly and a little on part3, or put all to extra cash on part 3 in hope of getting rid of that near £25K by Feb 2011 (when fixed rate would finish).

Even thought of possibility of remortgaging to get BoE tracker mortgage, but am tied in on parts 1 & 2 and would be stung for massive £4k redemption fee!

Any advice/ideas will be most helpful.

CLAPTON

all things being equal pay as much as possible (or you're allowed) to the debt with the highest APR

financialbliss

NewlyFrugalMumof3 wrote: »

Part 1: £55,397.83 as at 1 Aug 08 - overpaying £70/month - Term 22 years
Part 2: £61,264.91 as at 1 Aug 08 - overpaying £80/month - Term 22 years
Part 3: £24,517.07 as at 1 Aug 08 - overpaying £10/month - Term 15 years
TOTAL:£141,179.81:eek: :eek:

Parts 1 & 2 are at 5.54% - fixed until Nov 2012
Part 3 is at 6.24% - fixed until Feb 2011

However, have decided to have a bash at really reducing mortgage, so want to overpay by extra £140 - totalling £300 overpayment each month. However, not sure whether to overpay parts 1 & 2 mostly and a little on part3, or put all to extra cash on part 3 in hope of getting rid of that near £25K by Feb 2011 (when fixed rate would finish).

Hi NewlyFrugalMumof3,

I agree with Clapton - as you would if these were credit cards, always pay the highest rate debt off first.

As part 3 is 6.24% while 1 and 2 are 5.54%, throw everything you can at part 3 to get this cleared as soon as possible.

I also see you posted your original question twice - you may want to delete the other one to stop different bits of replies / advice being posted to both questions.

Financial Bliss.

NewlyFrugalMumof3

thanks to both CLAPTON and financialbliss. Seems a bit daunting leaving the bigger amounts just being paid off at normal rate; but I'm getting excited at how quickly I could be MF on part 3 of the account. Am seriously becoming a MSE geek and proud of it! Am finding it very addictive. My poor OH!
Good luck to you both in your MF efforts.

Rikki

Check with your mortgage company the total amount you can pay off in any one year, some have a 10% limit depending on the deal you are on.

Jonbvn

As per other posters advise always pay off highest rate loans 1st. However, please ensure you check your T&C's to make sure you don't incur any ERC's.

financialbliss

NewlyFrugalMumof3 wrote: »

thanks to both CLAPTON and financialbliss. Seems a bit daunting leaving the bigger amounts just being paid off at normal rate; but I'm getting excited at how quickly I could be MF on part 3 of the account.

NewlyFrugalMumof3,

Calculating the interest charged on your debt. Roughly, its:

Part 1: 55,397.83 @ 5.54% = 3,069 a year or 255.75 a month
Part 2: 61,264.91 @ 5.54% = 3,394 a year or 282.84 a month
Part 3: 24,517.07 @ 6.24% = 1,529 a year or 127.49 a month

Total interest = 7,992 a year or 666.08 a month

Half part 1 and it's still about 3k more than part 3, but part 3 is almost half the interest of part 1 due to the higher rate.

Hope that helps,

Financial Bliss.

NewlyFrugalMumof3

Thanks Rikki - its called a Flexible loan but I need to dig out contract and check details.

And Johnbvn - thank you for reminding me to check T&C before I get carried away and through all our grocery money at mortgage too and live off baked potatoes from hereon in!

I know I can also make a one-off capital payment in January, but again I need to check the maximum amount.

Wow Financialbliss, I would never have known how to work interest out. But that's so helpful. When I see the actual interest I get charged each month, it really is making me more determined to be MF sooner rather than later.
I will definately check out my T&C, find out how much can bung at mortgage in January and pay off part 3 first.

thanks for all your help.