Keep up big repayments to my father-inlaw or overpay on my mortgage?

mrjamin

Hi there,

Could do with some advice on where I should be putting my money.

Current situation:

• Mortgage balance of £85k on a tracker +0.5% (britannia) with the option to overpay, 20.5yrs remaining.
• V.flexible loan from my Father-inlaw (made up most of the deposit for our house) with balance of £36k, fixed at 4% interest indefinitely

My house is (pessimistically) worth about £160k, but probably more more.

I'm currently repaying about £450pcm on the mortgage and £500pcm to my FiL, my question is this: Should I reduce repayments to my FiL and overpay on my mortgage while its cheap, or keep it as it is?

I've been adopting the "pay off the higher interest one first" approach to date, and overpaying on the mortgage (when possible) when interest rates were higher. Right now, I'm paying off my FiL as much as I can in favour of overpaying on the mortgage. I'm reticent to move the family loan in to a new mortgage because the flexibility he offers is very useful.

My current thinking is that overpayments on the mortgage are probably better when you factor in the compound interest as long as I pay back more on the family loan than the monthly interest?

silvercar

"pay off the higher interest one first" approach to date,

Financially this makes more sense.

Plus the advantage of not owing money to family.

penguin83

Personally I would keep it as it is as I would want to pay back my FIL as quick as I could but it all depends I suppose on your relationship with him and his own financial position.

From a purely financial point of view have a look at the snowball calculator to see what the difference would be in total paid including interest in each scenario x x

opinions4u

Pay off father in law unless you have plans to move again and there is limited or no equity in your house.

I hate owing family anything more than an occaisonal favour.

Gorgeous_George

Taking a new mortgage would not leave you with such an attractive rate.

Overpaying your father-in-law isn't one of your poll options so I'll abstain.

GG

poppy10_2

Tell father in law to reduce his interest rate in line with market conditions

Gorgeous_George

poppy10 wrote: »

Tell father in law to reduce his interest rate in line with market conditions

That's a bit arrogant.

Father-in-law could earn 4.3% in a savings account with his money safe upto £50K. I think 4% is cracking rate to borrow money at. If it was agreed that the rate was fixed at the outset, would you be advising the OP to ask for it to rise had interest rates increased?

GG

poppy10_2

Tell him you will switch to another father in law if he does not maintain his competitiveness

Comyface

poppy10 wrote: »

Tell him you will switch to another father in law if he does not maintain his competitiveness

:rotfl:LOL!:rotfl:

Sorry OP, don't want to trivialise your question, but I did literally laugh out loud at that post!

To answer your question, I'd carry on doing as you're doing, overpay most expensive debt first. And, like some others, I would rather owe money to a bank than any family members, it's far less complicated that way!

dimbo61

At the same time your FIL has been very kind in helping
his daughter and son in law get on the housing market.
£500 a month is £6,000 a year and it will take 6 years to repay the original loan and then the 4% interest.
FIL is happy because he will struggle to get 4% after tax in the savings market and as long as he does not use the loan to beat you with I see no harm.
It also gives him a regular income each month.
The interest of course he should declare to the nice tax man!!!
Great mortgage rate by the way just make sure you are also saving into ISA,s at 3.61% tax free ( £3600 each !)