Quicky - Is this just easy maths? 1 November 2004 at 12:25AM edited 30 November -1 at 1:00AM in Mortgages & Endowments 3 replies 1.4K views

jrb1221

Can anyone help with what must be easy maths...

I have two mortgages and can overpay without penalty. It was easy as the one with the most outstanding also had the highest interest rate. The question is, now that interest rates have increased which should I overpay...

1. 40K outstanding, fixed at 4.79%
2. 29K outstanding, tracking and now at 4.84%

ie. Should I overpay the highest interest rate or highest outstanding amount?

Furthermore, if the answer is just compare interest rates, should I not use the money elsewhere where the interest rate (taking into account tax) could be higher (e.g. the new 7% savings accounts from Abbey/Halifax)??!

Thanks all!!

zMoney

Are both mortgages interest only?

If both are, then always clear the debt with the highest interest rate first.

Halifax/Abbey offers are worth a look, however the 7% figure is before tax, after tax the margin between your mortgage rate and savings rate is very slim.

And if your mortgage rate increased above the savings rate, you won't be in a position to stop paying into the savings account, because a condition of both account is that you fund them monthly for a year. Failing to to do so leads to the accounts reverting to normal savings accounts with interest well below your mortgage rate.

Robert_Sterling_3

The Abbey Account pays 7% gross 5.6% after tax at 20% and 4.2% after tax at 40%.
So if you pay tax at 20% you would be better advised, for the time being, to put the money in the Abbet Reg Sav Account.

Which of the two you pay off is of little consequence as long as the rates remain as they are now.

Pay off £1000 at 4.84% Your notional intererst is about £48.40 Tax Free

Pay off £1000 at 4.79% Your notional interest is
about £47.90

The difference is only 50p per £1000 repaid.

jrb1221

Thanks for the replies. As my fixed rate comes to an end next May (when hopefully interest rates have come down a bit again), I'll keep overpaying the big one for the time being.

Cheers