Good at working out Apr?

worcester1

I promised to work out a friend's finances - a homeowner loan. Turns out I am just as rubbish at maths.

My friend's Homeowner loan (£14k over 10 years) started May 2003 to run until April 2013. Remaining balance stands at £7,063 as at March 2009. The loan is on a tracker so each time the BOE IR drops the loan Apr drops as well.

He received a letter yesterday saying that his monthly interest rate from 24/05/2009 is 0.291% - making his monthly payment £150.79.

What we are trying to work out is;

1 How much capital is he paying off per month from a £150.79 monthly payment?

2 How much capital is he paying in a given year?

3 Is it worth overpaying his homeowner loan by £250 per month - there is no penalty to do so

Or

4 Overpay on his mortgage (a tracker) which is currently at 2.74% for the next 18 months. After which he intends to go on the bank's SVR or remortgage to a better deal.

This is assuming that interest rate stay low for at least the next 18 months.

Please feel free to answer part or all of my many questions.

Thanks in advance

CLAPTON

what does an interest rate of 0/291% mean?

worcester1

sorry clapton - typo! blame me fat fingers

meant 0.291%

CLAPTON

Well, if the monthly interest rate is 0.291% ..and he owes £7,063
then interest paid per month is 7,063 x 0.291% = £20.55
so he is paying £150.79-20.55 = £130 capital back each month

as the months so by the interest will reduce and so the capital repaid will increase a little.

this APR is about 3.55%

If his mortgage is at 2.74% APR then its best to over pay the homeowner loan as its best to pay the debt with the highest APR

mind you both are very low rates.

I assume he has no other debts.

worcester1

Thanks Clapton - yours is lot simplier to understand than Artful's. His equation almost blew my brians out.

Yeah it's only the mortgage & homeowner loan.