Which mortgage to pay off first?

Jibjab_2

Hi everyone.

My OH and I have recently decided to try and pay one of our mortgages off, and I'd like some help in deciding which would be better to pay off first or whether actually it doesn't matter, as long when the first one is paid off we kept up the same overpayments on the remaining mortgage, plus the extra we’d be saving from not paying the paid off one. We won’t change the mortgages atm as that would increase our low interest rate but we can repay as much as we like with no penalty

Mortgage 1
£64,700 Repayment 2.5% 18years remaining

Mortgage 2
£58,500 Interest Only 2.5% 20years remaining

Savings we can put towards an overpayment straight away:
£27,500

Overpayment we can afford to make per month:
£460

I’ve had a play with the overpayment calculator and I think we’re better to pay the interest only one back first but I’m not sure I’m doing it right and whether actually it makes no difference which one we pay back first.

Any advice greatly appreciated!

Lois_E

Since they are both at the same rate, it won't make any difference which you pay off first, as long as you plough back the difference into more OPs.

The thing to look at is whether either or both of them has any early repayment penalties or limits on how much you can overpay in a particular timeframe.

adwat

I'd use the lump sum to pay down the interest only mortgage. The repayment mortgage interest will decrease over time as the capital decreases with your normal payments but the interest only mortgage monthly interest will never decrease unless you pay off some of the capital by overpaying. Your lump sum is half the interest only mortgage balance so you'll be saving half the interest on this mortgage which you can use to make further overpayments on either or both mortgages.