Mortgage Over Payment Advice

pmh_1983

Hi there,

First post, so hello to all.

My girlfriend and I are wanting to make an over payment on our mortgage for £5,000. We have our main mortgage of £84,000 (£745 a month) and we also have some additional borrowing of £12,500 (£395 a month). The main mortgage has 3 and a half years left before the term comes to an end and the additional borrowing has 3 years left and then its gone. The interest rates on both is 2.19% and we can overpay up to 10% of the original amount without a charge, which is about £13,500 for the main mortgage and £2,300 for the additional borrowing. So after all that my question is should we overpay on the main or the additional? We in part want to clear the additional borrowing within a year to be £395 a month better off but then we also think that if we pay £5,000 off the main mortgage now we would save more money in interest in the long run. Also in about 12 months we would have about another £5,000 saved up which would then be enough to clear the additional borrowing 2 years early, thus freeing up nearly £400 a month which we would then likely use for home improvements.

Any help would be greatly received, thanks.

[Deleted User]

You pay off the highest rate part, assuming no penalties.

pmh_1983

Deleted_User wrote: »

You pay off the highest rate part, assuming no penalties.

They are both 2.19% - if we pay 5K off main mortgage no penalties, if we pay 5K off additional borrowing the fee is about £80.

[Deleted User]

Then you pay it off the main mortgage.

pmh_1983

Deleted_User wrote: »

Then you pay it off the main mortgage.

Okay - seems more beneficial to do so but we wanted to free up the extra £395 a month by getting rid of the additional borrowing hence the question.

Tom99

pmh_1983 wrote: »

Okay - seems more beneficial to do so but we wanted to free up the extra £395 a month by getting rid of the additional borrowing hence the question.

You can pay the max off the 2nd sum which will mean the £395 will end sooner. You can then start overpaying the main sum, as lump sums or by increasing the monthly amount.
Either way you will save the same amount of interest in the short term but paying if off the 2nd loan will get rid of that sooner and you only need focus on the main sum outstanding.

getmore4less

You are not really £395pm better off 2y early.
All you save is some interest(~£350) on the money you use to pay it of early which will be quite close to the same £395pm you then "free up"

You may be better using the £5k to fund your improvements so you get the benefit now.

3Y £12,500 2.19% £360pm your loan must be less than 3years)
1Y £12,500 2.19% £1054pm
1Y £7,500 2.19% £632pm (£5k + £272pm=£8264/24=£344)