[Closed] Mortgage trackworld

Your reducing the term of the mortgage and hence reducing the compound interest so the total amount is relevant.

Get rid of the smaller loan and then work on the bigger one

No, in this specific instance footflaps was right, it makes sense to significantly shortern the term of the smaller mortgage and then repay more on the larger mortgage

you'd save 15K on the smaller one and presumably more than 5k on the remainder of the other loan - although I can't find a calculator that'll let me postpone the overpayments for 13 years to accurately find out.

(If you go on a 12 year mortgage on the then outstanding 72k you only save 3.5k but that assumes a monthly payment capitalto interest ration that would be starting the mortgage term from then rather than the capital to interest ratio you'd have after half the mortgage term which would be more favourable.)

but it's certainly not as simple or clear cut as you seem to think.

It really is as simple as overpay on the highest rate loan.
There is no other answer.

No it isn't.

Your reducing the term of the mortgage and hence reducing the compound interest so the total amount is relevant.

That aside, you do not typically reduce the term of a mortgage by overpaying. With most mortgages, overpayments count towards reducing the monthly payment (smaller capital, repaid at x% over your fixed xx year mortgage). The term will only be reduced when you re-mortgage / re-negotiate.

That aside, you do not typically reduce the term of a mortgage by overpaying. With most mortgages, overpayments count towards reducing the monthly payment (smaller capital, repaid at x% over your fixed xx year mortgage). The term will only be reduced when you re-mortgage / re-negotiate.

Sorry, thats just incorrect. You agree with the mortgage lender an amount you want to borrow, the rate and length to repay - that gives you a monthly figure. Regular overpayments don't mean the monthly figuire is recalculated every month - you just stop paying the same fixed monthly fee earlier.

That's true for a single repayment,, annually compounded one year loan, not a mortgage.

Of course. But the point I'm making is that the cost is a fixed % of a the loan. That is always true for the same length of loan at the same interest rate

I did some calculations on this a few years back trying to decide if we should push to pay off all or most of our mortgage. Its so blindingly obvious but but I had been deceived by all the mystic stuff about compound interest

Lets imagine that that you have £10,000 in cash now and a £10,00 mortgage that runs for another 10 years.

You can borrow at 5% or you can save at 5%. Unlikely but it makes a useful comparison.

You can either pay of the mortgage in full and have no money

Or you can put the money in a savings account at 5% and make the mortgage repayments from the savings account. The end result is the same after 10 years you have emptied the savings account, you have no money

But usually it cost more to borrow than you get from saving. This favours paying off the dept

But if the roof blows off and you need £5,000 for a new roof then you might end up borrowing at higher rate than the mortgage you paid off

Sorry, thats just incorrect. You agree with the mortgage lender an amount you want to borrow, the rate and length to repay - that gives you a monthly figure. Regular overpayments don't mean the monthly figuire is recalculated every month - you just stop paying the same fixed monthly fee earlier.

It's certainly correct for most fixed term mortgages (including my own) which I'd assumed these were (possibly incorrectly) based on the phrasing of the question.
I didn't say it was calculated monthly, it is usually recalculated yearly when you receive a yearly statement.

ain't anyone got some work to be doing....?

if you have a 100k mortgage at 2% and 50k at 3%:

In one year, the interest is 3500 making the total debt 153.5k minus whatever you've agreed to pay over the year in regular monthly payments.

Take 10k off the 100k, and the total annual interest is 3300
Take 10k off the 50k, and the total annual interest is 3200

In each case the total debt at the end of the year will be 143.3k or 143.2k respectively minus your regular repayments. It should be fairly obvious which one is preferrable.

(Yes, I'm assuming interest and principal recalculated annually once a year, the principle is the same in other cases but the sums are a bit more work.)

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAARRRRRRRRRRRRRRRRRRRRRGGGGGGGGGGGGGGGGHHHH

FFupsS just put the fuppin' numbers in the fuppin' calculator!

Why should we put the number in a calulator. We know the answer

If you want the numbers in a calculator then put them in a calculator

I did!

Hence the answer.

FFupsS just put the fuppin' numbers in the fuppin' calculator!

Yes the figures in the OP. Assuming they were two separate loans.

As conceded earlier in this specific instance Footflaps suggestion, in terms of paying off the two in totality then it PROBABLY makes sense to pay off the smaller first.

Yes the figures in the OP.

Get rid of the smaller loan and then work on the bigger one

in terms of paying off the two in totality then it PROBABLY makes sense to pay off the smaller first.

If the OP has to pay both loans then he should look at the effect on the total he pays.

There's no probably about it.

Best. Thread. Ever.

Not that I'm a mortgage expert, but the Chartered Accountant in me would say you always pay off the higher interest loan first. It's on that basis that I never paid off my student loan quicker as any excess funds went to settling overdrafts / mortgages which attracted higher interest rates.

I'd be interested in seeing the calculations that supposedly show it's best to pay down the lower rate loan first. My guess is that there's some implicit assumption in there about future payments that isn't relevant or appropriate (especially given that the OP states hs can overpay either loan).

I'd be interested in seeing the calculations that supposedly show it's best to pay down the lower rate loan first.

and yet not interested enough to type 'overpayments calculator' in to google.

I feel I've sown a seed of disharmony here that is alien to the usual harmony enjoyed by the denizens of this forum and for that I am deeply apologetic.

Simply put someone needs to do the maths probably the OP as it's ultimately all his fault.

I went to a mortgage overpayment calculator and put in his figures. I assumed a 20 year term on both mortgages and a £250PM overpayment for each until the loan is paid.

He saves 15,153 overpaying the larger loan with lower % off
He saves 11,623 overpaying the smaller loan with higher % off

If I'm not mistaken that means paying the larger balance first saves him more.

So The stabiliser

Joolsberger I assume you have made the same mistake

Based on TheStabilisers numbers

right!
over 25 years
£200/month would save you ~£15k on the smaller mortgage or ~£20k on the larger
in interest

OK i have given i and repeated the calculation and you are not comparing like with like.

Yes the calculator gives the numbers you give. But:

You didn't mention the extra 6 years of paying £200 a month!!!!!

You've saved an extra £5000 grand but spent an extra £14,000 to do so!!!!

Your numbers are over the life of the mortgages which are different time periods

Yeah, no.

What ampthill said.

If you have a fixed monthly pot to make repayments from, then at some point one or the other loan will be the only one left being paid, and at which point all your repayments switch to that.

Always pay off the higher interest rate first regardless of duration.

Extreme example, a credit card and a mortgage. If you paid off the mortgage first, yes the term would drop, but you'd owe a bazillion pounds on the CC by the end. If you pay off the CC in month 1 and put nothing in the mortgage, then the mortgage term increases by a month (and a bit due to compound interest, maybe a few months).

Face Palm

Thestabiliser, I can certainly work out the correct answer myself, what I couldn't confidently do without seeing your working is work out why you and some others were getting it wrong. Though it looks like my guess on that score was in fact correct.

HSBC a and money saving expert both got it wrong too I suppose?

Just show your working. What site did you use, what numbers did you put in, and what answers did you get? Are you assuming the same total monthly payment (including overpayment) over the full length of the loans?

Read the ****ing thread

All you've said is this:

thestabiliser - Member
right!
over 25 years
£200/month would save you ~£15k on the smaller mortgage or ~£20k on the larger
in interest

http://www.mortgagesexposed.com/

use a mortgage overpayment calculator

Well I'm glad we are all on the same page now

Did we all manage to get through without questioning each other parentage? Yes

Did I learn stuff? Yes

Did it stop me being bored? Yes

So the final question?

When the mortgage is finally paid off and the OP rolling in cash what will he spend the money on?

T5 camper conversion

Wood burning stove

A new bike. But If so what rim and tyre size will be the latest thing?

doosuk

But I did all the other bits. Read the thread

doosuk

But I did all the other bits. Read the thread

I have, but I'm right royally confused now. I thought you were disagreeing with thestabiliser.

I was disagreeing but I assumed that "face palm" was agreement/could see where he had been mislead

Basically the bigger mortgage allows bigger savings as its bigger. But only as you pay for longer

In this case you over pay the high interest loan until it is paid off. Then you make over payments on the other. Presumably these over payments would be the full value of what you were paying on the first loan and the over payment

The maths is easy. Well easyish. What makes my head hurt is if you try and factor in say needing £15,000 in 9 years time to help the kids go to uni. Do you save separatly or over pay the mortgage. Over paying the mortgage looks better on paper but you don't actually have the cash to hand over

But none of you have used the online calculators?

But none of you have used the online calculators?

I did that is where i spotted the 6 year gap!

Can you give an example set of numbers where you have two loans and it is better to pay off the lower interest rate first?

Yes. Where the low rate term is coming to an end in 6/12/18/etc months time and the rate reverts to (a higher) SVR. We have no idea if this may be the case. We're just assuming it isn't. What's that saying about assumptions..?

There is no need to look at a calculator as the way you are using one is wrong.

Instead of comparing costs over the life of the mortgage (because as ampthill pointed out... it means you've assumed the overpayment won;t be transferred once one is paid off), use the MSE calculator and sum the total loan value of the 2 mortgages after say a 5 year period (before the pay-off & transfer would matter).

If you assume a 25 year repayment period for each, after 5 years:
Overpaying on the smaller mortgage = Total debt of £197,990
Overpaying on larger mortgage = Total debt of £198,103 (+£113)

From this you can see that total debt is reduced more quickly by overpaying on the smaller (higher interest) mortgage.
The effects of compound interest only makes this more pronounced as if we look at the values after 10 years, the difference is even greater:
Overpay smaller = Total debt of £140,977
Overpay bigger = Total debt of £141,486 (+£509)

Yes. Where the low rate term is coming to an end in 6/12/18/etc months time and the rate reverts to (a higher) SVR. We have no idea if this may be the case. We're just assuming it isn't. What's that saying about assumptions..?

The total sum of debt makes no difference to the choice you make.

FFS go to your mortgage lender and ask. They will work it out for with full facts, current mortgage terms, repayment methods, may consider rates end dates. I am sure people who do not deal with finances let alone mortgages every day are giving you "advice" read opinions.

Ignore my SVR comment. I was assuming that you could effectively offset savings from one, into the other after the SVR goes up... which would be possible through payment holidays etc but makes it all the more complicated.

Double post.