Where to put overpayment?

ScarlettsMum

Hi there,

I am wondering if I could get some thoughts from you guys about where to put an overpayment we are going to be lucky enough to be able to make.

This month we are getting a bonus of approximately £8000 to put towards our debts.

We have just built and extension and owe £13,000 on a loan at a rate of 3.4 % and the original plan was to use this money to pay some of this off.

However our long term goal is to pay off our mortgage in the next 10 years or so. We currently owe a scary amount £141, 782 at a rate of 3.69%. We can overpay up to 10% in a year.

Should I be thinking about paying our lump sum off the mortgage instead of the loan as it's at a higher rate?

Any thoughts?

User1489

You should pay it off the mortgage. It is a higher interest rate and you are well within your 10% threshold if you are paying £8k.

Also, if you pay it off the mortgage, your loan to value ratio will decrease, which is likely to let you remortgage at a better rate when your fixed term is up.

Hope that helps,

MvM

ScarlettsMum

Thanks, so if I'm right we should aim to throw 10% at the mortgage and then any extra at the loan.


How do they work out 10%? Is it per year as in the mortgage was taken out in Feb so Feb to Feb or a rolling year?


Sorry to ask daft questions I'm new to this.

choccielover

Depends on the provider.

My 10% is of the value of the original mortgage I took out, even though I remortgaged (with same provider) subsequently.

Some are of the reducing balance I think.

User1489

i'm with the H@lifax bank. In the initial year it's 10% of the opening balance of the mortgage, then it's 10% of the 01/01/20XX value.

A_Frayed_Knot

ScarlettsMum wrote: »

Thanks, so if I'm right we should aim to throw 10% at the mortgage and then any extra at the loan.

How do they work out 10%? Is it per year as in the mortgage was taken out in Feb so Feb to Feb or a rolling year?

Sorry to ask daft questions I'm new to this.

No, they mean 10% of the mortgage outstanding at Feb when you took out your mortgage (providing this is your 1st year) or the balance at 1.1.xx of this year, if its not your 1st year.

choccielover wrote: »

Depends on the provider.

My 10% is of the value of the original mortgage I took out, even though I remortgaged (with same provider) subsequently.

Some are of the reducing balance I think.

Never heard of this one, which would be beneficial to those who have a small mortgage, so can easily afford the 10% then hold them back, as no more allowed

rasputin_thorpedo wrote: »

i'm with the H@lifax bank. In the initial year it's 10% of the opening balance of the mortgage, then it's 10% of the 01/01/20XX value.[/QUOTE]



I wonder if you mean mortgage outstanding and not the value of your property at 01/01/xx, this too, would be benficial but I'm with H@lif@x too, and I think its 10% of the outstanding amount at the start of the year.


Maybe I'm wrong, but I do know, having taken out my new deal in Oct - I was allowed :rotfl: to pay 10%, from Oct to Dec, (some chance) then 10% from Jan onwards to Dec.

User1489

yes, always the value of the mortgage, not the property.