DFW: Debts vs Mortgage

spoodz

Hi,

Currently repaying a £20k loan (interest free) at £230 a month (7.5 years to go)

Mortgage statement came the other day, £77k to go, repaying £505 a month @ 5.2% (fixed till 2012). 19.5 Years to go.

I've found myself in the position of having £150 a month available to put towards one of these. Whats the best way of clearing all my debt in the shortest time? I thought about putting it towards the mortgage, but the plan is that once the loan is out of the way that £230 would be going towards the mortgage too. Am I better paying the £150 to clear the loan quicker so I have a bigger lump to pay off the mortgage, or paying it towards the mortgage and combining that with the £230 loan payments once the loan is clear in 7 years? I am allowed to make overpayments of upto £500 a month.

Tixy

Hi Spoodz

Well in terms of reducing the interest you pay you would be best advised to overpay the mortgage. Also if you overpay the mortgage when you come to remortgage in 2012 you will have a lower LTV so may be able to get better mortgage deals.

Is the £20k guaranteed to stay interest free for the duration?

IWantToBeFree_2

I would echo Tixys comments, its far better to be paying off the debt with the highest rate of interest first. You will have to check with your mortgage lenders what level of overpayments they allow though, as some mortgage lenders only allow a certain amount without penalties.