Mortgage overpayment vs pay-off car PCP

preston2572

I can’t see that this has been answered elsewhere, at least not explained in a way which makes sense to me, but sorry if it has been. 
I also appreciate that this is a nice problem to have at the moment.
I essentially have around £10k which has become available with various regular savings etc., accounts maturing. With the dismal savings rates available, I planned to use this to overpay my mortgage (currently year 3 of a 5 year 1.9% fix). I already have an emergency fund so there is no issue with losing this liquidity, I have a good defined-benefit workplace pension, and I am not the sort of person who would be comfortable investing even though the rates would probably be good.
My hesitation is I also have a car PCP with around £10k remaining at much higher 4.9% interest. In my head paying off higher interest debt first makes more sense. But then the compound interest from the mortgage confuses things.
Paying the PCP now would save £ 603 in interest according to the settlement figure from them.
Overpaying the mortgage by £10k would - according to the MSE calculator - save me over £5k over the lifetime of the mortgage and shorten the term.
Does my confusion about which to choose make sense or is one of these blindingly obviously the correct choice? 
Thanks in advance for any help.  

Salemicus

Unless there is some penalty for early repayment of the car loan, it's blindingly obvious to pay off the car loan first, because the interest rate is higher.

preston2572

This is what I thought
But I can’t get my head around saving £600 by paying off the PCP but £5000-odd by overpaying on the mortgage

Thrugelmir

There's a considerable difference between the PCP lease term and that of the remaining mortgage.

Settle the PCP then use some of the money saved from doing that to overpay the mortgage. 

K_S

preston2572 said:

This is what I thought
But I can’t get my head around saving £600 by paying off the PCP but £5000-odd by overpaying on the mortgage

I'm trying to think how to explain this but I'll leave it at Martin Lewis' advice as it applies to your case

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But if you've other, expensive debts, clear 'em first

A crucial rule of debt repayments is: clear the most expensive debts first. Do so and the interest doesn't build up as quickly, saving you cash and giving you more chance of clearing debts earlier. Therefore, as a rule of thumb...

Clear high-interest credit cards and loans before overpaying your mortgage, as they're usually more expensive.

Petriix

It's really simple: pay off the PCP, then overpay the mortgage every month by the amount that you would have paid on the PCP.

The strange notion that you pay more interest on a mortgage due to the length only holds true if you choose to pocket the savings you make by no longer having to pay the more expensive loan. Very wonky logic if you ask me!

getmore4less

You have to do like for like. 

Same starting point, same amounts going out each month over the period you have calculated the PCP savings over by paying it off. 

See what's left at the end of the period.

steampowered

You should pay off the PCP first. That 4.9% interest will also compound.

Before you start overpaying the mortgage, you should consider your pension situation. Work out what you are paying into your pension and use a pension calculator. If you are only paying the minimum, it is likely you are setting yourself up for a baked beans retirement.

Pension contributions have a much better return than overpaying the mortgage (pensions return 6-7% a year on average) plus you will get tax relief (instant 20% uplift from the government if you are a basic tax payer).

After your PCP is paid off and pension situation is sorted, then you should start overpaying the mortgage.