Overpayment advice - where to target first.

tommyedinburgh

My wife and I have been in a fortunate position for some time that we have been able to save £1,500 per month. We've amassed the equivalent of 6 months in wages for us both / one person's salary.

We both are about to get significant pay rises in April, we really want advice of what to do next. We have the following payments each month:

Mortgage £720
Car 1 £200
Car 2 £153

Would we be best to start overpaying to pay off the car loans which are both 2.9% or the mortgage which is 2.8%?

miss_undastood

Technically you’re best to do the cars first as the rate is higher.

But the mortgage is the larger debt so will lessen your future outgoings - as the rates are so similar personally I’d focus on this. Plus you’re likely to change cars more often than houses.

I would also check that you can’t earn more in savings - better to have 10k in a 4% interest account than to pay 10k off a 3% mortgage.

Butti

Plus overpaying on your mortgage reduces your exposure to debt and wins you brownie points with your lender. This is handy if anything unexpected happens - it automatically gives you more options.

Socajam

I would suggest 6 months emergency fund and 6 months life happens fund
Then I would tackle the lowest care payment first, get that out of the way, then double up and tackle the next car.
Once both cars have been paid off, I would take 50% of that money and put it on the mortgage and the other 50% would go towards saving for car repairs, house repairs etc.
Regarding the pay raises in April, I would put that money in a forget it account via direct debit - and live on the salary you have now.

tommyedinburgh

Thanks for the advice folks, we will hit her car first then take it from there.

phillw

Also, don't forget that if you can get interest > 2.9% by saving the money elsewhere then you're better off doing that than using that money to pay down the loan.

So as many TSB account up to £1500 @ 5% that you have direct debits for (maximum is 3 accounts for a couple IIRC). Then I'd sort out a 0% credit card for emergencies & maybe take a look at what you're spending. Even if you don't cut down now, your emergency fund only needs to cover what you actually need to pay out every month.

tommyedinburgh

We've currently got five issues of Virgin regular savers and one with Santander so all 3%, would we be better to keep doing that and let the loans run their course?

edinburgher

tommyedinburgh wrote: »

We've currently got five issues of Virgin regular savers and one with Santander so all 3%, would we be better to keep doing that and let the loans run their course?

Yes, if you can afford to do so.

AnotherJoe

Socajam wrote: »

I would suggest 6 months emergency fund and 6 months life happens fund
Then I would tackle the lowest care payment first, get that out of the way, then double up and tackle the next car.
Once both cars have been paid off, I would take 50% of that money and put it on the mortgage and the other 50% would go towards saving for pension car repairs, house repairs etc.
Regarding the pay raises in April, I would put some of that money in a pension forget it account via direct debit - and live on the salary you have now.

So many posters here just paying down cheap mortgages at the expense of their pension, no doubt thinking they will get round to it when the mortgage has been paid off but especially if they are high rate taxpayers, thats akin to both burning money and declining free money.

miss_undastood

My pension deal is awesome. I contribute 6% and my employers contribute 20%.

I’m only paying down my large mortgage to lessen the potential liability to a level where I feel comfortable - my small mortgage I’m in no rush to pay off.

It’s all about balancing the pots and being able to live and hopefully not stretch too far whilst looking after both now and the future

kev2009

I'm similar to @miss undastood, albeit only 1 mortgage.

I have a pension contribution in total (mine & employer) of 18% each month going in and i'm also now trying to start reducing my mortgage with OP's. I made a small OP last year (first one ever) and now looking to do the same this year & next. My 5 year fixed is up in 2020 so i'm hoping to knock as much as i can off to hopefully make my next 5 year fixed a similar amount to what i pay now or lower. I then plan to continue OP for those 5 years with a view to hopefully reducing the mortgage even further and to a more manageable state, where by if interest rates did suddenly shoot up, it would leave me in a predicament that i may need to sell it etc, i'd still hopefully be able to afford the repayments.

Kev