Overpay my loan or my mortgage

CamtheScot

Hi I need some mathematical help as I am worried I am overthinking this.

I have a £72000 mortgage at 3.14% over 19 years to go
I have a £6200 car loan at 3.3% over 3 years.

I am currently overpaying my mortgage by £163 per month due to wife earning.

My question is this:

Over the long term is it better to overpay the mortgage or pay of the car loan as it is the higher interest rate? (though only just)

My logic is:

• The £163 is money I won't have to pay at the end of the mortgage and would have sat to be paid for the duration of the mortgage and therefor will be 179% of what it was = £300 by then
• The car loan with a shorter term will have a compound interest rate of not much higher than the current 3.3% after the 3 years
• This means that £163 put against the mortgage is significantly better for me than the car

BUT

1. Am I neglecting the fact that it should only be calculated for the short 3 year period as after that any further debt difference will be balanced by the future payments against the mortgage instead at the later stage?

Basically, should I pay off the car loan at twice the speed and be clear in 1.5 years and then hit the mortgage then

or

hit the mortgage now

or

not worry as it makes such a tiny difference int eh long run anyway

I already have my emergency fund sitting and don't need to create one

Thanks for any help

A_Frayed_Knot

I would go for;

[FONT=&quot]pay off the car loan at twice the speed and be clear in 1.5 years (so long as you don't get charged a penalty for clearing it off quicker) and then hit the mortgage.[/FONT]

[FONT=&quot]My thinking is, pay the highest interest loan first.[/FONT][FONT=&quot]
[/FONT]
[FONT=&quot]Edit - you say you have an EF, depending on how much you have and what rate you are getting interest, if its a large EF, then I would also consider paying a lump sum to either one.[/FONT]

User1489

I would pay the car loan and get it off my back.

Then use that cash and the normal car loan payments against the mortgage.

Or do half and half. I don't think it really matters, the interest rates are so similar.

newgirly

Another thing to consider is will you be near the threshold when you next remortgage to move into a lower ltv lending bracket? If oping the mortgage would tip you into a lower mortgage interest rate you might want to consider that too!

CamtheScot

I am 1 year into a 10 year fix so remortgage brackets are not of great concern.

Thanks for replies so far