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Your thoughts . . . .

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So I am a MFW and have kept my mortgage details in my signature and have focused on this.

My main passion is my motor and I go to all the meetings, special Audi events (I got to drive an R8 V10 at 162mph yesterday, legally I might add) and give my car a lot of love.

I consider my car as something that I will always waste money on and for the past two years I always pay the same amount to Audi. I have had four different cars in this time. For me it is an ongoing thing and I am happy with that.

Now; I reviewed my payments and worked out that if I got a personal loan and pay off Audi with it I can save £60 p/m. I have since done this and this is great. The bad thing is this loan now appears on my online banking and is bugging me as it is at 7.4% which is higher than my mortgage.

My main goal is to beomce MF and hence I now pay around £650 p/m in OPs on my mortage which has a 3.19% interest rate. I am doing this for two years and then I will start paying down my 2nd loan on the house (currently 0%). The idea being to get to below 60% LTV to remortgage to a decent rate when this one ends and hopefully to free up some money each month to help service the 2nd loan.

I think my idea above is good but now I can see this loan at 7.4% should I pay this down first? It makes financial sense from an interest rate perspective but it doesn't immediately assist my MF plan.

Your thoughts . . .
As of 23/05/14
Main Mortgage - £114,940/£125,731 at 3.19%
Loan £2,912/£3,700 at 8.8%
OPs - £3,510 - target £6,000 by Dec 2014
Original MF date June 2045 now March 2044
Savings - £5,010 - target £8,000 by Dec 2014

Comments

  • BlueMoo
    BlueMoo Posts: 424 Forumite
    I would probably concentrate paying off the loan first.

    However, you will need to take into account comparative interest i.e although the rate is lower on your mortgage, it is also a much higher amount and those overpayments could effectively mean you pay less overall interest than you would have paying off the car loan.

    Someone with math skills would need to work this out.
    M3 Dec2015 #160 Target £150,000 (BU £155000)
  • Jonbvn
    Jonbvn Posts: 5,562 Forumite
    Part of the Furniture 1,000 Posts
    You should always pay-off the higher loan first. The sizes of different loans is immaterial. A simple example shows this.

    Say you have £1000 to overpay your mortgage or car loan.
    • If you OP your car loan you save £74.00 interest per year.
    • If you OP your mortgage you save £31.90 interest per year.
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:
  • BlueMoo
    BlueMoo Posts: 424 Forumite
    edited 4 November 2013 at 12:37PM
    Don't think I explained my point well, but using your £1000 example. (It's not just the interest rate, but length and size)

    IF Orig Poster is planning off paying mortgage in 25 yrs, then 31.90 x 25 = 797.5 saved in overall interest
    If Orig Poster is planning off paying the loan in 2 years then, 74.00 x 3 = 148 saved in interest.

    The cumulative effect of the Over Payment made to the mortgage COULD conteract the higher interest rate paid on the loan.

    Mortgage at 3.19% on 118k means £3764.20 interest paid per year
    Loan at 7k for 7.4% means £490 paid per year

    I'm sure I haven't explained this well, but basically it boils down to Einstein “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

    Hoping a maths bod can come in and sort this out.

    However, like I said my personal preference would be to pay off the higher rate loan first, regardless of interest saved.


    ETA: For further clarification (though I may just be confusing things further)

    I put in 118k mortgage over 25 years on 3.19% with £650 OP and this is what came up. (Would putting that off OP for another year to pay off the loan save you more interest or would you pay more?)
    Overpaying would save you
    £35,054 in interest alone,
    and mean you pay it off in full
    15 years and 9 months earlier.
    You repay £571 per month (excl. Overpayments)
    Assuming your interest rate stays the same
    If you overpay, the total you'll repay, inc. interest & fees is £136,336
    Not including any early payment charges from your lender
    M3 Dec2015 #160 Target £150,000 (BU £155000)
  • Thanks for input. I think in the long run the mortgage OP may make sense due to the compound interest and the limited amount of interest savings I can make on the loan.

    Based on the above and my current situation if I pay £650 off next month this will save me £1,092.82 in interest alone on the mortgage. This is a staggering amount.

    Now
    As of 23/05/14
    Main Mortgage - £114,940/£125,731 at 3.19%
    Loan £2,912/£3,700 at 8.8%
    OPs - £3,510 - target £6,000 by Dec 2014
    Original MF date June 2045 now March 2044
    Savings - £5,010 - target £8,000 by Dec 2014
  • Beckyy
    Beckyy Posts: 2,833 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    If you pay overpay the car loan you'll save more interest than you would on your mortgage in the same term. If you then pay off the loan early you can automatically OP the mortgage by the amount it was each month.

    Although it's nice to see the mortgage going down it's long term low interest debt, so personally I'd throw everything at the car loan first. Then once it's paid off you'll have more to throw at the mortgage.

    PS - I'm envious of the R8 drive...broombroom!
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