Mortgage / Loan advice needed!

richardcalver

Hi,

I looking for some help and advice, I’ve been looking over and over again at the figure work and I think I’ve probably looked too much and the answer I need is looking me right in the face!

I have a outstanding mortgage of £140k – this was over a 30 year period (fixed at 6.69% for 2 years) but I’m now on a variable rate (currently 2.59%) and have no penalties for making over payments.

Secondly I have a unsecured loan of £26k over the same period – currently also at 2.59%, If I needed to remortgage I wouldn’t be able to combine the two products but I’ve been making overpayments to my unsecured loan – It started at £32K and I’m down to £26K so I’ve been going at it!

What I’m unsure about is should I be making the overpayments to the unsecured loan to lower it, or even better clear it before interest rate rises or attack my mortgage more?.... at the moment I’m paying £600 a month towards the mortgage and at least £500 to the loan – normally around a £1000 though.

Any help would be greatly appreciated.

Rich

dimbo61

First of all thats a very good rate you are paying on both loans ( more luck than judgement ?)
You dont give the LTV of the mortgage or what your home is now worth but OP on both loans is a good idea as long as you dont get hit with an ERC,s
You have 2 debts at the same rate so overpay what ever you can afford each month while rates are low!

JimmyTheWig

Things to confirm...

1. There are no early repayment charges for overpayments on either loan.
2. That on both loans interest gets recalculated after an overpayment and is charged on a daily balance.
3. Are you currently in a discount period for the loan, or does it just match the SVR for mortgages?
4. The loan is unsecured?
5. Why couldn't you combine the two if you remortgaged?

Depending on answers to the above, my gut feeling is to overpay the mortgage, keeping to the minimum repayments on the loan.
Reasons...
1. If at some stage in the future you can't keep up repayments, it is more serious to default on a secured mortgage than an unsecured loan. By overpaying the mortgage you minimise this risk.
2. If you want to remortgage to a fixed rate to avoid rates rising then your mortgage would end up on a higher rate (at least for the short-term) than your loan. Therefore you want the lowest mortgage balance possible.
3. When you come to remortgage, the lower your LTV the better deal you'll be offered.

Alternatively, are you able to put money in tax-free savings (e.g. cash ISAs, non-working spouse)? You could earn more than 2.59% this way in which case just pay the minimum on mortgage and loan and put any overpayments into savings. Use the savings to overpay the debts if the rate rises above what you are getting on your savings or lower your LTV, etc.