Where to put where

Jamevos

Forum newbee here, and I joined because we’re really not sure what to across a few finance products we have, (the biggest of which hopefully understandably are our mortgages). 

We have:
£370,000 mortgage at 2.94% fixed for 5 years until 31/10/27

£67,000 mortgage at 1.59% fixed for 5 years until 30/09/25

£7,100 Halifax Car Loan 8.9% (payment is £358/month)

£23,000 in savings at a rate of 2%

 

We’ve a few options (including doing nothing):

Option 1: pay off car loan with savings and then overpay one of the mortgages with the £358/month

Option 2: pay off a chunk of the smaller mortgage with savings (this is the mortgages which is likely to be renewed at a much higher rate in 2025 / or do the same with the larger mortgage (as it’s a bigger amount)

Option 3: keep savings and use to pay off a lump sum closer to 2025/27

Option 4: pay of car loan with 0% credit card, keep the savings earning interest and pay off lumps of the mortgage closer to 2025/2027

There are too many things to consider for my head to work out and I could really do with some help unravelling them.

Thanks in advance for any suggestions/options or advice.

 

Edi81

Repay the car loan then see if you can get a higher interest rate than your mortgages in a new savings account?

SuzeQStan

Hi OP - welcome to the forum. You have set out some interesting options there.

 I suppose if it was me I would pay off the car loan as it’s the highest rate of interest with existing savings, then set aside remaining savings in as high an easy access/short term fixed interest rate bearing account as I could find as an emergency fund.

 I’d then use the former car payments to make over payments on the higher rate (albeit longer fixed term) mortgage.  Reason being that your savings would earn
more interest than your lower interest rate mortgage rate but unlikely savings would outperform the higher rate mortgage interest rate.

At that point I would do a statement of affairs on here to see if anyone could help me identify further savings I could make to put more over payments towards the mortgages as most mortgage products will let you overpay 10% of the original balance per year (but important to carefully check 1st so you don’t get hit by an early repayment charge.) 

additional savings / overpayments over time could provide a decent buffer come time to renew mortgage products over the next few years. 

Hope you find the solution that works best for you.

MFWannabe

Pay off car loan and use that money to overpay mortgage 1 
Put savings in higher interest savings account 

ironlady2022

Pay off car loan and find some better savings rates. You could put a small amount in a 1 year fixed bond. Some banks only require a small amount. Nationwide on 4% locked for one year. 

housebuyer143

Definitely pay off car loan and then get a high interest instant access, recently got one for 2.75% and put rest in there. I wouldn't pay off the mortgage with the rest of your savings, it's good to have a buffer

dander

I don't know if those are your only savings but if a crisis struck and you had to rely on those to cover your mortgage payments, bills etc, I'm guessing (based on mortgage size) they wouldn't last you hugely long. On that basis, I would focus on keeping and building up a savings safety net rather than overpaying mortgages. Overpaying now won't win you a mortgage holiday in the future if you need it, but savings will cover you.
That said, I agree with others that clearing the car loan seems sensible. Personally I'd pay that off with savings, then get putting that £358 into building savings back up and beyond, then once you've got a really secure buffer consider overpaying mortgages.

Jamevos

Thanks all for your responses back, that’s been really helpful. 

November, December and January are expensive months in our house, but I think despite that it’s worth paying to car loan off now as per your suggestions (we’ll save on some interest too). 

I’ll set up an overpayment on the large mortgage but keep an eye on our savings balance - if it’s not growing as we want I can always call off future overpayments. I agree as it stands it wouldn’t tide us over for long.

Thanks again!

flashg67

I'd agree with the above and look at the car loan first. Check what you can overpay annually on the mortgages - many are a max of 10% of the outstanding total in each year before you get penalised.

silvercar

You need some rainy day savings before you start paying anything off! You know how secure your job is, but you don't want to completely run out of easy access cash.

Only you know how close to the wind you want to sail, I would also be inclined to clear the car loan first, but do remember that the mortgages are secured debt, whereas the car loan isn't. If things turned really bad then your home could be repossessed if you failed to make payments, whereas your car is just a car.

If you are secure in your job or have fallback savings or family to rely on, I would clear the car loan and open a high interest savings account. Provided it pays more than your mortgage rate you are better off. When it comes time to look for a new mortgage deal, you can decide whether to pay the mortgage down with your savings.