3 Part NR Mortgage - which part should overpayments be credited to?

*jobags*

Hi

I have a fixed rate 5.89% mortgage with NR - expires in December then onto 7.59%

The mortgage is in 3 parts

Repayment £175,318.75

Interest only - £80,455.52

Unsecured Loan - £20,049.95

I have decided to cash all our deadbeat investments in and throw them at the mortgage. I hope to clear off £40,000 by December and then overpay by £400 monthly

I have already overpaid £535 and had a little impact

I have just made another overpayment of £6750 this week

NR say that in the absence of any instruction they will split the money between the three accounts.

I have asked (and they have accepted) that it all comes off the repayment part

Have I done the right thing or doesn't it really matter?

Sorry if this question has been asked before - I hve trawled but couldn't find anything similar

Jo

Ma77hew

I think it would depend on whether or not they all have the same interest rate. Normally, you would be better paying it off the one with the highest amount first, however if that is the loan then at the moment you would probably also want to consider whether overpaying the mortgage rather than the loan would get you a better mortgage deal when your current one runs out.

I think Nationwide have a mortgage for 5.75% at the moment so maybe it is worth aiming to be able to beat the 7.59%

Also Personnally I would pay it off the interest only first, as the repayment is already being repaid.

Have you shortened the term on the repayment to take into account the overpayment? Otherwise your monthly payments will go down so you won't end up being mortgage free earlier.

Dithering_Dad

What investment vehicle are you using to pay off the Interest Only part of your mortgage? If you don't have one then this should be the priority.

If it were me, I'd actually get rid of the unsecured loan first because I don't see how this can be at the same APR as your mortgage. Unsecured loans are generally more expensive because the lender will factor in a certain amount of 'insurance' against defaulters. Then I'd tackle the IO mortgage bit (I'm currently doing this - mine was £38k and is now 6K - Yay!), then I'd tackle the repayment mortgage.

But remember that before you start paying down your mortgage, you should make sure you have adequate emergency and retirement savings in place first!

*jobags*

Thanks for the advice so far

Everything is at 5.89% until December - I was planng to remortgage and wrap everything up in a repayment mortgage at that point
We've actually given up on our endowment and are surrendering it it's making less each year then we are putting in and after 16 years and £32.000 it's now worth £33,000!!!

I think there is some sort of penalty about paying off the loan before 7 years, but there's no penalty about reducing it

There's no penalty with the mortgage being shifted elsewhere after the fixed rate period ends in December

I'm looking at reducing term rather than monthly payments

Jo

Dithering_Dad

I wouldn'convert that unsecured loan into a secured one by consolidating it into your mortgage. A lot of people on the DFW board have done that and regretted it. Why not just blitz it down to practically nothing and then let it run its course?

*jobags*

Yes - I think I'll do that - I'll pile the dosh on this element

I'll have to check whether the unsecured loan interest rates go to SVR after December or whether they go higher

The unsecured loan repayments are £163 monthly for 20 years - If I zap that and get it down to under £5K then adjust the repayments if funds get tight - I can probably then afford to keep the mortgage term at 15 years without the £20K loan as I was thinking we would have to go for a 20 year term

We can also borrow back aganst overpayments so it could be a useful resource in an unexpected emergency


Jo