Which loan is best to try to pay off first??

Mrs_A_Davis

We have a mortgage of £100,00 and the interest rate is 1.5% at the moment (tracker) This is great - for now. The mortgage has 11 years to go.

We have a loan of £50,00 over 12 years as well. The interest rate is 5%.

Which is best to try and overpay on first? The mortgage or loan.

Thanks:)

danouk

Assuming that there are no penalties or restrictions on overpayments, pay off the 5% loan first. Reason: it's got longer to run and the interest rate is much higher.

Penalties and restrictions may affect this of course, but without knowing if they exist and what they are we can't take them in to account. Don't assume that there are none - always check with the lender about penalties or restrictions before making overpayments.

Mrs_A_Davis

Hi. Thanks for info. That was what I thought would be best - the higher interest rate loan. My only thought was that the amount of loan was only (only!?) £50,000 as opposed to £100,00 on the mortgage - a higher amount.

Plus, our mortgage is on our home - the loan is unsecured. If there was problem, god forbid, i would be worried about our home.

Thanks again for advise and I will check if there are any penalties.

Regards
x

danouk

Well, the secured vs unsecured issue is something only you can make a call on. From a pure money-saving point of view, you will save more money on the interest by paying off the 5% loan first.

black_taxi_2

remember that 5% interest rate is compounded each year--so its like 5% + 5% on amount outstanding each year
much better to pay off loan