Overpay Mortgage or Loan????

tegai1

Guy's,
Here is my situation, I am finally in a situation to start overpaying either my loan or mortgage but don't know which one to do.

I have a Loan with Northern Rock: As of today settlement figure is: £16,219 and a Balance is £18,527 @ a rate of 7.48%, with <4yrs left to pay (No max by lenders on overpay) - Current DD is £390pcm

Mortgage of £90,000 at 6% with 27yrs left to pay. (Max lenders will allow to overpay is £500) Current DD is £600pcm.

I think i can start to overpay approx £300-£500 pcm although i have no savings so i might want to save some cash as well.

Any advice would be very much appreciated.

Thanks in advanced

hedge15

if it were me, I'd be very tempted to start an ISA so there was a cushion of cash put by in case of the unexpected.

Maybe £200 into an ISA & £100 overpayment on the loan? When/if you find you can do the £500 rather than the £300 a month then split it between the loan & the ISA.
Mind you, once you've got a bit of cash in the ISA I'd also reckon that making the permissible overpayment on the mortgage is worthwhile - though it probable makes more sense to make this overpayment from cash rather than from the ISA as you're limited to how much you can pay into an ISA each year. £3600 pa for a cash ISA?

dubaiscot

Hi there - if it was me I would use the overpayments to build up some savings ffirst for a rainy day (i.e. car breaks down, boiler etc).

Then I would focus on the loan. Once the loan is gone, you can remortgage to a deal with less term and massively overpay to clear it off earlier.

dubaiscot

Or, as another option, you could consolidate the loan into the mortgage. This would help you as you would benefit from the reduced interest rate, and over pay from there.

This is only advisable if you dont rack up any other debts.

Doing this can be controversial so it will be interesting to hear other people's opinions!

Surfbabe

I'g go half to savings and half to the higher rate loan first. Thats what I do with my spare cash

Welshlassie

dubaiscot wrote: »

Or, as another option, you could consolidate the loan into the mortgage. This would help you as you would benefit from the reduced interest rate, and over pay from there.

This is only advisable if you dont rack up any other debts.

Doing this can be controversial so it will be interesting to hear other people's opinions!

I wouldn't do this as you would end up paying for your loan over 27 years instead of 4, therefore incurrng more interest.

I'd suggest getting some rainday funds behind yourself and then start overpaying on the loan, get it paid off asap then use the loan payment and overpayment monies to overpay on the mortgage, you'll shot of it really quickly if you can overpay all that money on it.

peb

Hiya

Def agree to get some savings behind you first. However is the Loan frontloaded? Ie is hte interest added on at the start so that there is no benefit in overpaying? ALso look at snowballing (hopefully someone will let you have a link)

It is not worth adding the loan to the mortgage in this instance.

tegai1

Ok, good news and bad news.

Just called the loan comp and they tell me that my settelment figure is actually £15,652 woo hoo.

Bad new (i think) is that it is a frontloaded loan. So overpaying will simply reduce the term of the loan, i won't save on interest.

So the actual balance of the loan is approx £2000 more than the settlement figure.

So with this in mind shall i forget about overpaying the loan and concentrate on the mortgage?

Thanks for your help so far guys.

tegai1

...after I put some aside for savings that is!:j

itsnever2lateisit?

tegai1 wrote: »

Ok, good news and bad news.

Just called the loan comp and they tell me that my settelment figure is actually £15,652 woo hoo.

Bad new (i think) is that it is a frontloaded loan. So overpaying will simply reduce the term of the loan, i won't save on interest.

So the actual balance of the loan is approx £2000 more than the settlement figure.

So with this in mind shall i forget about overpaying the loan and concentrate on the mortgage?

Thanks for your help so far guys.

If the settlement figure is less than the balance outstanding then there is benefit in repaying the loan early.(You will save interest on the difference between final repayment date Vs the current run out date) You say that you have <4 years to go. If you were able to save £300 per month into an ISA then after 2 years you will have £7,200 (plus interest). By then your settlement figure will be less than this, so you could use it to repay the loan, then you will be unsecured debt free in 2 years rather than nearly 4:j . Then you will be in a position of having the monthly loan repayment AND the £300 ISA payment to tackle your mortgage with

tegai1

:j :j :j :j :j :j :j
Ok i like that idea!!! Thanks.

Any advice on ISA's or are they all the same?