Best way to pay off mortgage - advise please

gemima

Hello

My husband and I have a fixed rate mortgage of £155,000 with the Nationwide for 4.79% ending July 2010 and a further advance of £20,000 on their SVR making a total of £175,000. At the moment we are only paying interest due to having 2 small children in quick succession and me not working. We have 19 years left to run. My husband is 38 and I am 36

Anyway, we are now in the position to start repayment again (alebit this has always been interest only as far as Nationwide are concerned).

My husband thinks we would be best to start with the fixed rate loan and overpay on top of the repayment if we can in order to bring this down more. I think we should overpay as much as we can on the smaller one.

Can anyone advise which would be best to do? We want to bring the mortgage down as much as possible in the next 2 years. Also do we need to tell the Nationwide that we are doing repayment now or just overpay and they will make the necessary adjustments?

Thanks in advance

silvercar

It generally makes sense to make repayments off the loan with the higher interest rate first as this reduces your interest bill and so gives you more money to make larger capital repayments.

I know you intend increasing your monthly repayments but take the situation when you have repaid 10,000.

Interest only on the 155k at 4.74% is 612.25
Interest only on the 20k at 6.49% is 108.17
current total...............................720.42

If you had repaid 10k off the main loan the total would drop to 680.92
If you had repaid 10k off the smaller loan the total would drop to 666.34

That extra each month would mean you could increase the repayments each month without feeling the pinch.

It is important to check that there are no early repayment penalties for making these over payments.

I would tell the lender what you are doing and check there is no charge for doing so and that you want the repayments treated as capital repayments rather than interest.