Pay off Loan or Overpay Mortgage?

mrskirsten

Hi all

Lurking for a long time, looking for some advice and wisdom, want to try and make 2015 our year

My partner and I currently owe £10,000 on a loan at 9.4%, paying around £220 per month, 5 years left

We also owe £96,080 on our mortgage, 5.19% fixed until Dec 2016. Payments currently £490 per month (is a help to buy mortgage, hence a higher repayment at the moment).

From keeping our belts tight, we have a little surplus each month. I am wondering what your opinions and advice would be:

Should we overpay the loan with a view to minimise it so we overall owe less money when it comes to renewing our mortgage

Or

Should we overpay on the mortgage and leave the loan ticking along so as to reduce the LTV when it comes to renewal?

Any advice would be super

PinkPoppies

Does your loan allow you to make regular over payments, or would you need to save the money and settle it in one payment?

If you can't make regular over payments, a mortgage offset savings account might be the best of both worlds if your lender offers them? You could save your surplus money in one, use that money to pay the loan up once you have enough in there, and benefit from reducing the interest you pay on your mortgage in the meantime?

northerner999

Your loan would still be factored into equations when renewing your mortgage, even if your LTV is reduced from overpayments, so it's a bit of a balancing act.

PinkPoppies' question on the loan is a key one - if you can make overpayments in stages and without penalty, then I'd be inclined to reduce that if possible (or even a combination of both). When I first bought my property I needed a bank loan to help furnish it, and really powered through it to allow me to then overpay a bit on my mortgage.

mrskirsten

From checking the agreements, there is no mention of penalty for overpayments. I was thinking it may be best to save an amount and then pay off every six or 12 months for the duration of the current mortgage term.

Thanks for the suggestion PinkPoppies, I will have a look at whether our lender offers that