Which mortgage should I overpay pls?

22225

Hello
Which mortgage should I overpay please?  I have 2 mortgages on my property, both for 33 years. I have £114k fixed for 2 years at 1.54% (because we ported it)  and 205k fixed for ten years at 2.24%.

We are worried about the rate on the 114k being massive after 2 years so should we make extra repayments on that mortgage and leave the 205k to worry about later (in ten years)? Even though 114k is less than 205k?

We may save the overpayment money into a higher rate savings account for 2 years but it's more which one should we try and knock down as we are worried about the rate being huge in 2 years eg 6% etc.

Many thanks

ElwoodBlues

Put your money into savings and then decide what to do when the 2yr fix is coming to an end. You'll be marginally better off financially that way, but more importantly you'll have maximum flexibility. All assuming you have the self discipline to sustain the savings. It's highly likely that you'll be better off using those savings to overpay on the 114k in two years time.

Also, you should probably try and adjust your attitude to interest rates - 6% is moderately high, but it isn't huge. You're current fixes are incredibly low. Even when your 10 year fix ends, rates are highly unlikely to be that low again, and you'll still have 20 years term left. Take advantage of your current low rates to save in anticipation of overpaying, and reduce your mortgage term. In 10 to 20 years from now, you'll be thankful that you did.

22225

Ok yes good points but mathematically, whichbis it best to pay? A smaller amount at a higher rate or a larger amount at a smaller rate? Is it always the rate that is the decider? 
Yes agree about the term.

Orchid96

I will be paying off the smaller loan even though it is at lower rate now. Reason is in 2 years time, that rate will go very high compared to the other loan.

simon_or

I would put the money in one or more savings accounts, plenty offer a LOT more than 1.54% currently.

In 2 years, when it's time to switch products, I'll use the savings to overpay the 1.54% mortgage part as that will almost definitely be the more expensive mortgage part going forward.

Unless and until savings rates go down below 2.5% (I don't think they will anytime soon), I wouldn't touch the 10yr fix mortgage part.

ElwoodBlues

22225 said:

Ok yes good points but mathematically, whichbis it best to pay? A smaller amount at a higher rate or a larger amount at a smaller rate? Is it always the rate that is the decider? 
Yes agree about the term.

It's impossible to know mathematically, without knowing what mortgage rates will be offered in 2yrs and 10 yrs. Crystal ball time!

However, I think it would be very unwise to overpay on the 10yr fix at this point, unless you think that when the 2yr fix ends you'll be able to get another fix on that one at 2.24% or better. My guess is that the chance of that is pretty much none!

Hence you're better off overpaying (or rather saving to overpay in 2yrs) the 2yr fix. Focus on that one until you've got a better idea of what rates are going to be 10 years from now (so about 9.75 years!).