Two Mortgage Rates - Which One To Overpay On?

CityTiger

When we bought our house we ended up with two mortgage accounts at First direct, both on different rates. This was because we had to borrow more than we initial requested and they wouldn't honour the rate on the amount over our original request.

So, we borrowed:

£248,500 at 2.19%
£40,250 at 2.69%

We want to start making regular overpayments of £200 a month but I'm not sure which mortgage account to send the overpayment to. Should we overpay on the higher amount on the lower rate, or pay off the lower amount at the higher rate?

I've done the MSE overpayment calculator and it seems to think overpaying on the higher amount on the lower rate would save us more money in the long run. Is this correct?

[Deleted User]

Overpay the higher rate debt.

getmore4less

More nonsense output from the MSE calculator.

Higher rate first as that save more interest assuming no charges.

AnotherJoe

I guess your confusion is because you are thinking the higher amount with lower interest might outweigh the smaller amount with higher interest, but it doesn't work like that.

If you pay off say £100 that £100 is what you are saving the interest on. So on the higher rate each £100 saves £2.69 whilst on the lower rate it saves £2.19. So every £100 you pay in the higher rate saves 50p a year compared to the lower rate.

So, pay off the higher rate.

CityTiger

Yeah I thought the higher rate made more sense but then the MSE calculator made me doubt it! Makes sense, I'll pay off the higher rate first. thanks for the help.