Mortgage Overpayment Vs Paying off Loan

homeaway

If you pay your car loan off it gives you more cash to hand if that is important then do that. You can then maybe overpay the mortgage by 350 per month or put some into savings. Putting a lump sum into the mortgage will save you a lot of interest but if you pay off the car loan then you have a choice each month of what you do with the 350. We paid our small loan on off freeing 350 Euros a month and now we put that straight into the mortgage but if things are tight for whatever reason we dont have to overpay that month. It is swings and round abouts.

CLAPTON

You have two financial resources available to you
a. a cash sum of 14,000
b. a month sum of 350 for 42 months

your problem is how to use theses TWO resources to best advantage

so you need to compare

1. using 14k to pay of the mortage and look at the saving in interest over the life of the mortgage

2. using 14k to pay off the loan AND use the 350 x 42 payment to overpay on the mortgage

that way you are comparing like for like

the easy way to do it is to compare the APRs...pay the debt with the highest APR ..it really is that simple.

bunking_off

CLAPTON's correct. You weren't comparing like-with-like in your earlier analysis and have to factor in overpaying your mortgage by £350 42 times to do so.

Only element I'd add to the mix is the risk, if you pay off the loan, that either (a) you'll think well the car's paid for, so I'm ok to buy another hence take out another loan or (b) find some other way of spending the £350 so you don't overpay by the full amount you've saved by not having the loan.

Even with that, I'd probably go for dumping the car loan as having the highest APR.

BadgerMan78

Guys, this is great - this site is such a useful resource for advice (I understand the final discusion is always mine though). I think CLAPTON has hit the nail on the head and considering I can almost guarantee not doing either of the things suggested by Bunking-Off and will definately be putting the £350 (and hopefully more) to overpay my mortgage each month from March onwards if I pay the loan off in the next few weeks, then I'm guaranteed to bring savings above those figures previously quoted by myself.

Thanks all again, you've been great!