Overpay Question

moncs

Hi,

I have a quick question about overpaying I am hoping someone could advise me on.

I currently have two mortgages on a property worth £160k.


Mortgage 1
10yr fixed at 4.98%, fixed rate ends in October and it goes down to Base + 0.95%, so it will be a fantastic 1.2%. Outstanding balance - £61k

Mortgage 2
3yr fixed at 3.4%, fixed rate ends in Oct 2018. Outstanding balance £20k

I want to overpay by around £100/£150 per month and wondered what the best one to overpay on would be? I presume Mortgage 2 as its the higher rate but just wanted to make sure.

Lokolo

I assume you get a 10% free overpayment on both?

moncs

Lokolo wrote: »

I assume you get a 10% free overpayment on both?

5% on mortgage 1 and 10% on mortgage 2

Lokolo

Mortgage 1: Free repayment from now until October = £3050 - not sure if you have an ERC on the tracker mortgage?
Mortgage 2: Free repayment per year = £2000

In terms of finances you should overpay the highest interest rate (which is currently Mortgage 1), but as your Mortgage 1 is going to reduce in 2 months I wouldn't bother setting up early repayment on this to then change it again.

I would concentrate on overpaying Mortgage 2, but only overpay until you reach your ERC limit of 10%. Your mortgage 1 will reduce dramatically in terms of repayment amounts in October with the reduction in interest rate, so this will free up some cash which you can add to the early repayment.

Once you have reached your early repayment limit on Mortgage 2, go back to Mortgage 1 and overpay that. This then resets next October (2017) where you can then switch to over pay again on Mortgage 2 until that mortgage expires.

Once October 2018 comes round I would look at remortgaging to get rid of one.

moncs

That's great advise, thanks very much.

getmore4less

you would normally overpay the higher rate but in this case that is NOT what you do as there is not enough time on the higher rate to make it optimalover the periods involved.

the key bits of info
cost to end date Oct 18 3+24 months

£100 will cost

3/12 @ 4.98%(£1.245) + 24/12 @1.2% (£2.40) total £3.645

or

27/12 @ 3.4% £7.65

over pay the 3.4 till you reach ERC.