Pay Extra Towards Mortgage Or Loan?

Gaz83

In comfortable, full-time secure employment. Wage per month after tax is just over £1,500. Due a pay rise of £80 per month (after tax) every year over the next five years beginning in August as I move up the salary scale. So within five years it'll be just over £1,900.

Also do some self-employed work, which brings in on average about £350 - £400 per month after I set aside 30% for tax etc..

Mortgage is £650.70 per month (5.59% fixed rate until January 2016) and I've been using the extra self-employed income to pay extra towards the mortgage. But I also have a personal loan that has £5,700 outstanding (£117 per month). Loan is at 5.3% I think, but will need to double-check paperwork. It's definitely between 5% and 5.5% though, so not much different to my mortgage.

It's not going to make much of a difference financially considering the similarities in interest rates, but I have two options - continuing paying the extra to the mortgage, or pay the extra to the loan. If I pay extra to the mortgage the principal, term and interest will come down considerably but the loan will continue for the next 57 months. However if I pay the extra to the loan then conceivably I could have it paid off in about a year-and-a-half, at which point I could then pay the extra £117 to the mortgage as well.

What would MSE users do?

Cheers!

-taff

Can you pay more off the loan without incurring penalties for early repayment?

Pixie5740

I would throw my spare money at the loan and then once it was paid off pour all my extra money into the mortgage. I'd rather have one payment for the mortgage coming out my account each month rather than two payments for the mortgage and loan. I also think that paying off one debt completely would feel like an achievement that would boulster me on to paying off my mortgage.

That's just my thoughts and definitely not a financial advisor of any kind

-taff

I was just thinking that if there were penalties with paying the loan off early, then the mortgage would be a better bet.

giblet1979

I am in a 'similar' situation Gaz (although it's an easier decision for me as my loan is 7% and mortgage 4.5% approx).

I think in your position, as long as there is no penalty for paying off early as others have said, I would clear the loan first, and then put everything towards the mortgage.

Good luck with everything.

Gib x

Gaz83

Cheers for the replies, folks. Definitely a bit food for thought. As being said the financial difference is negligible. But it would be nice having one less payment leaving the account each month.