Mortgage query? Two part mortgage - pay off one in full?

Gopher123

Hello,

I am hoping someone can reassure me that I am making the right choice. 

We are very fortunate in that we are about to inherit approx 80k.

We have two mortgages on one property.

Part 1 is £123,209.56 at 1.59% interest until April 2025 with 20 years and 8 months remaining 5% early repayment charge and allowed to overpay 10% each year.

Part 2 is £81405.03 at 6% lifetime tracker 20 years and 10 months remaining. (no early repayment charge)

The obvious solution is to repay the £81405.03 mortgage in full and repay that part of the mortgage. Then use the overpayments we'd gain to reduce the £123,209 mortgage.

However is there any benefit from overpaying say £70,000 on the Part 2 leaving approx. £11,000 and then paying off £12,000 on part one and reducing that to £110,000?

Thank you for any replies...

Hoenir

Pay off part 2.  

Then start overpaying Part 1 after you fix with a new product in 2025. In the meanwhile leave your savings on deposit. 

Yorkie1

The general advice is to look at the interest rates on the mortgage vs what you'd get in savings after tax.

Part 1 is such a low mortgage rate at the moment, that it doesn't make financial sense to overpay on it right now. hence the suggestion that it's better to use savings unti the mortgage rate on part 1 has gone up in due course.

Part 2 is a higher mortgage rate than you'd get in savings after tax, hence the suggestion to overpay that part first.

Gopher123

Thank you. That’s exactly what I thought. Just one more part of the mortgage to go then 😀