Advise on finance question

Hi!

Should I have 1K to reimburse a loan, should I give it to my mortgage which still has 20 years to go, or to my car loan which has 4 years to go? They both have 5.8% cost.

Many thanks!

Reply to
cimetiere
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My unprofessional view is to pay the mortgage, you're then saving the interest on that money for the next 20 years or however long the mortgage has to run, but you'd best wait for other replies.

Tiddy Ogg.

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Reply to
Tiddy Ogg

It makes no difference provided once the car loan is paid off you increase your payments on the mortgage.

If you don't increase your mortgage payments once the car loan is paid off then you will save most interest putting it on the mortgage.

If you want to pay everything off as quickly as possible then it makes no difference where you put the 1k but once the car loan is paid off then you should increase your repayments on the mortgage by the amount of the car loan.

Tim.

Reply to
Tim Woodall

Have you checked the terms of both loans to see if there are any penalties for making a 1k payment? I know that some mortgages limit penalty free over payments to £500 per month, some limit to a percentage of the balance each year, some have no penalties.

Another thing to consider is whether making an overpayment will immediately reduce your interest. It does with most mortgages, but some loans may charge the interest at the beginning of the loan, or beginning of each year and not recalculate it if you make an overpayment.

5.8% doesn't seem particularly good for a mortgage, so another option you may want to consider, is finding a cheaper mortgage and moving your existing mortgage and the car loan to this. However this may be more hassle than you want, and you may still incur fees for early repayments on the existing loans.

I'm no finance expert, but I think that if both loans allow penalty free overpayment and both calculate the interest in the same way, then paying off the car loan will see the greatest reduction in monthly outgoings because 1k spread over 4 years is ~ £23 per month, whereas 1k spread over 20 years is only about £7 per month. However, you obviously save more interest on 1k over 20 years than you do on 1k over 4 years. Then again, if we assume that any money saved on the car loan repayments is paid off the mortgage, or vice versa, I don't think it actually makes any difference over the full 20 years.

Another thing to consider is are you likely to want the money back and does your mortgage allow you to borrow back any over payments?

On the other hand, it may be nice to get the car loan out of the way as soon as possible.

Reply to
Gareth

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