i am harrased, please settle a debt argument

harrased-gf

Hi forum

(I have posted this earlier today but when I came to see if there were any replies I couldn't find the thread again!!!)

Can someone (or everyone) please settle an argument between me and my boyfriend. It has been going on for a while.
If I am in the wrong I will hold my hands up, and if I am right then I will try not to be too smug!!!!


He has a repayment mortgage with the Abbey paying 7.340% interest. There is a little over £5000 left to pay. The repayments are £80 a month. We are able to over pay and do so by paying £120 a month.
Based on this over payment we should pay the debt off in 3 to 4 years.

In the post today he has received a junk mail letter from a loan company (never heard of it) which is offering £4000 over 36 months at 15.2%. The payments would be £137 per month.

I think its more important to pay less - hence the lower interest rate of the mortgage but he thinks it is best to pay it off sooner despite paying more to do so. I am convinced that we should stick with the mortgage.


Please can someone explain (in very simple terms so he understands) how the interest effects the payments and how much we will have to pay in the long run.

I apologise to all those who think we have nothing to worry about considering how little we owe but a debt is a debt and an argument is an argument so I would really really appreciate your help with this one.


What would you do?

exasparated and harrased girlfriend

MrsTinks

Not the proper answer you were looking for but can't you just overpay more on your mortgage? Or are you overpaying the max? That way you'd get the lowest APR, shorter period = best deal. Or if you can't overpay any more then keep the lowest APR (ie mortgage) and pay the most they will let you - then any extra you have put into an ISA and when you have enough pay off the last bit of the mortgage in a lump sump
Going for a 15.2% loan however at the best of times should be discouraged! It's definitely overpriced!

MrsTinks

And I think this is the thread you were referring to

G-G_4

If you have 4k in savings then surely saving the extra £1000 or so would be the best option and then clearing the mortgage?

ZTD

Well let's start from the other side of it. What is the amount of money per month you can throw at the loan/mortgage?

bandraoi

A quick fiddle in Excel says that a £4000 loan at £137 payments pcm and an interest rate of 15.34% should be paid off in 36 months with a total interest of £925.

An Abbey Loan of £5000 at £120 payments pcm and an interest rate of 7.34% will be paid off in just over 48 months with a total interest cost of £753.

You're definitley better staying with Abbey. If you can pay the £137 to Abbey, then you're talking 42 months and £645 in interest.

maninthestreet

Based on my calculations, £5000 at 7.35% interest, with payments of £80 per month, will payoff the mortgage in 6 to 7 years, with total interest of somehwhere between £1200 and £1400.

tyllwyd

You could try playing around with a loan calculator that takes into account overpayments - there is one here
http://www.themoneypages.com/apps/calculators/fleximortgage.asp

What you need to look at is the total payable in each case. BTW what would you do about paying back the extra £1000 of the mortgage if you took a loan that was only £4000 - trying to pay back two separate loans at the same time might stretch you too much.

But get him to think through the logic - as long as there is no penalty for overpayments, if he makes the same monthly payments to the mortgage as he would do on the loan, then the mortgage would be cleared quicker because out of that monthly payment, there would be less interest to pay each month and so more would go into paying back the capital.

For example, if he borrows 5000 pounds at 7% he will pay (approx) £29 interest in the first month. At 15% the interest is £62. So out of your £120 monthly payment at 7% he will pay off £91 of the mortgage and at 15% he will only pay back £58. (My maths isn't that great so I may have got the figures wrong but you can see the general principle!)

harrased-gf

Thanks to all of you who replied.

He still doesn't get it though. I think he would rather pay more and get rid of debt sooner and still thinks the loan at 15.2% is a better deal. So far he is not convinced.

G-G he hasn't come up with an answer for the £1000 left on the mortgage if he does take out the loan.

He just doesn't understand the effect of the interest rates on borrowing.

Any further advice would be gratefully received.

Still exasparated and harrased and totally fed up banging my head against the wall!!!

ZTD

He *has* to come up with the answer for the £1,000.

No wonder you're banging your head against the wall if his arithmetic can make a grand disappear...

hypno06

hmmmm....not sure how else we can convince him.

Have you tried using the snowball calculator - you can put both the loan and the remaining £1000 mortgage in there and see the total he will have to be paying etc and play about with the figures.

www.whatsthecost.com

Also......I think this is the smiley you are looking for......:wall: