Can I pay off my mortgage?

Gem_

Thanks for the new board Martin. I would love peoples help in getting rid of my mortgage!

SOA

£132 per month Car Loan (£5044 outstanding 10% apr, cannot overpay)
£282 per month Mortgage (£39,804 over 23 years)

£65 per month Gas and Elec
£15 per month water
£30 per month Landline + Broadband
£10 per month mobile
£100 per month petrol
£66 car & house insurance (paid in lump sum)
£10 TV Licence (paid in lump sum)
£13 Car Tax (paid in lump sum)
£120 food + occasional treat

Mortgage deal ended last month, was £249. I only get paid £900 per month so at the moment I guess I really need to move it!

I am a student so worried I wouldnt be able to get credit to move the car loan or the mortgage?

Thanks

Gem

peterg1965

You have a very low mortgage so there a number of options you could consider. One which springs to mind is a long term fix with cashback. This may not be everyone's cup of tea and you will pay a higher interest rate but the cashback may help you pay of the car loan. Currently you pay £414 month mortgage + ca loan.

With such a low mortgage amount the slightly higher mortgage rate doesnt make a vast impact on monthly payment. The Scarborough BS do a 10 year fix at 6.99% which gives 11% cashback. 11% on a 40,000 mortgage almost pays off your car loan (£4400). An example is that a 40,000 mortgage over 20 years (cutting three years off your term) is £309/month or over 15 years (8 years off the term) is £359. Both examples mean that you are better of each month AND you pay your mortgage off earlier. The mortgage is fee assisted too!

Cynics would argue that you are in effect paying your car loan off over a longer period of time but you still are paying less money out AND paying your mortgage off much earlier. You just need to be financially discilpined not to get into any more debt though. ( https://www.scarboroughbs.co.uk )

Hope this helps, I looked at this mortgage myself a few months back.

Sarah_Williams_3

Hi Gem,
I assume that you have another 3 years left on your car loan but you said that you cannot overpay which means that you could either stay with monthly payment or have to pay off the whole of £5044. Peter's solution gives you only £4400 which means that you cannot put that towards paying off your car loan until you have remaining £644.

Secondly, you must remember that you never get something for nothing. If the lender is giving away 11% cashback then he is going to make sure that he recoups that 11% cashback plus his profit. You must check terms and conditions of the cashback before embarking on it. These things are called Early Repayment Overhangs or other technical names.

Peter mentioned that "cynics would argue that you are paying off car loan over longer period. In fact, it is true. I have not done calculations but your 3 year loan would be paid over say, 23 years. The mortgage interest is a compound interest which means you pay interest on interest. At 6.99% I am sure that you would be paying double of the original loan or more over the mortgage term.

My advice is to speak to a local mortgage broker whose initial advice is usually free. They would look at whole of your financial circumstances to come up with a sensible solution. I hope this helps.

getmore4less

Sarah_Williams wrote: »

Peter mentioned that "cynics would argue that you are paying off car loan over longer period. In fact, it is true. I have not done calculations but your 3 year loan would be paid over say, 23 years. The mortgage interest is a compound interest which means you pay interest on interest. At 6.99% I am sure that you would be paying double of the original loan or more over the mortgage term.

This is just plain wrong there is no compounding and if you do it right it you will pay less.

You should use the current car payment to help pay of the mortgage so that the part that has been added will get paid off quicker than it would have done because the interest rate is lower.

Even if you don't use all the car payment money but just stick to a normal repayment schedule you will cover the extra interest so there is no compounding.

Still likely that you would pay more interest if you did this depends on the rates.

Lets check(some approx No.s.)

£132 per month Car Loan (£5044 outstanding 10% apr, cannot overpay) is 46 months total repaid is £6093

£5044 23years @ 6.99% is £37pm total paid is £10153 £4k more.

£5044 paying £132pm @ 6.99 is 43 payments total £5717 saving around 3 payment and around £370.

So any saving only work is the carches(payment/interest loading) if you pay of the loan early are less than £370.

Dithering_Dad

Considering Gem made her original post in Feb 2006, I'd imagine that she is well on her way to paying off that car loan, if not the mortgage.

I'm not sure why Sarah Williams has been trawling around in the MSE basement for this post, surely there are plenty of more recent posts that would merit a reply?