Mortgage trackworld

Couldn’t think in the life for me where else I’d get an answer to this and my head is already hurting trying to work it out… so over to you guys.

I have a mortgage that sits on two products with different interest rates and debt levels. I’m trying to work out which one is best to overpay.

Mortgage 1 – Balance £64,710 – 3.19% rate
Mortgage 2 – Balance £182,356 – 2.84% rate

The amount I can over pay by is within the limits of either mortgage so that’s not a consideration.

Which one would I be best overpaying? And how the hell do you work it out….

Thanks

Regardless of the balance, the answer is one with the higher interest rate of course mate.
The higher rate costs you more money so if you reduce the balance you’ll pay back less interest.

I think it as easy as the one with the higher interest rate.

Assuming no penalties and that the payment is credited as soon as you make it

It also depends on how long you’re going to be paying those interest rates and if one or the other is going to revert to SVR anytime soon.

Every pound borrowed is more expensive at 3.19 than 2.84 so pay off the 3.19 BUT rethink if any is on interest only.

Well hold tight isn’t the daily interest on the 182k a fair bit more than the daily on 63k so although the rate is lower the actual interest accrued over a set period is higher? Isn’t that the more important calculation? So I’d think he’d be better off overpaying the largest balance until he can get both onto a better interest rate or am I confused?

I bet you’re thinking it the wrong way around by looking at how much each costs to service each month…

Think of it this way: you’ve got an extra £1000 to apply to either loan. Which loan costs more to borrow £1000? Answer: the one at 3.19%.

balance 1 would be 2064 a year interest roughly for arguments sake

balance 2 would be 7016 in interest.

both assuming no capital paid – which probably isnt true so long as your not on interest free for some reason.

but without knowing the capital you pay back or the overpayment you intend to make its hard to give more accurate figures how ever balance 2 is accruing a bigger interest figure each year.

Joolsburger +1, that was my thought.

Aye get the bigger debt paid down. Its a marginal difference in rate and a substantial difference in balance

How long does each mortgage have to run, and how long does each discounted rate have to run? Will you be able to remortgage either, both orcombine them?
Are they interest only or repayment?

There’s lots of variables that may make bugger all difference or quite a sizeable one. More info is needed.

Use one of the overpayment calculators out there. Money saving expert has a good one. Plug the numbers into it for each mortgage and compare the results and it will tell you categorically how much you will save on each.

The other thing you’ll need is the mortgage no of years left.

Assuming a 25 year mortgage paying the £1000 off the smaller mortgage saves you £1196 in interest across the life of it and the larger one saves you £1025.

Don’t see the logic in paying the larger amount off – you’re just reducing a balance that’s accruing yearly interest – I’d pay off the one with the higher interest rate as all things being equal the amount on the mortgage isn’t relevant it’s the rate as they’re both debt unless you have different repayment vehicles for each or different mortgage terms?

I can’t believe how much debate there is about this.

The total balance is completely irrelevant. All else being equal in terms of penalties and terms, you overpay the one with the higher rate.

It’s unlikely that all else is equal though. You don’t usually take out two different mortgages at the same time, unless it’s a product designed to confuse the punter.

this thread just shows the (low) level of numeracy amongst the public…
there really is no doubt as to which you would be better to overpay

and remember if you have loadsa money you can overpay both!!!

Well hold tight isn’t the daily interest on the 182k a fair bit more than the daily on 63k so although the rate is lower the actual interest accrued over a set period is higher? Isn’t that the more important calculation? So I’d think he’d be better off overpaying the largest balance until he can get both onto a better interest rate or am I confused?

The larger loan has more interest in total

But that means nothing as you are not repaying the full amount

If you pay £100 off each mortgage over the next year you save £3.19 in interest on one mortgage and £2.84

It’s unlikely that all else is equal though. You don’t usually take out two different mortgages at the same time, unless it’s a product designed to confuse the punter.

My assumption is that when moving or extending the second mortgage was taken out to cover the extra but was set up to end in the same year

The proportion of interest to capital on a repayment mortgage changes over time though as you pay cumulative interest. SO the more you pay earlier in the term the more you save over the life of the mortgage

I’m interested in the answer to this if you work it out OP. I’m fairly confident that getting the balance down on the larger loan is the way to go. Different is the balances were similar but they aren’t.

Just to add fuel the the fire*, you should also consider that many mortgages have a minimum loan value. I believe this is about £50k. What this means in practice is that if your paid down either or your two, to below £50k, you may find remortgaging them to a better rate in the future becomes more difficult. Just worth bearing in mind.

*this fire shouldn’t really be burning, its a fairly straightforward calculation. This thread is proving that forums are not always the best place to discuss things.

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

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

That can’t be right.

Mortgage 1 – Balance £64,710 – 3.19% rate
Mortgage 2 – Balance £182,356 – 2.84% rate

Every £200 debt costs £6.38/annum on Mortgage 1 and £5.58 on Mortgage 2.

When you over pay your (normal) monthly payments reamin the same, right? That’s because your interest in calculated over the life of the mortgage, its an annual rate equivalent that accrues compound interest, not a simple ‘this year it’s X*y%’.

Yes but one has a balance three times the other so the actual interest accrued daily is far higher on the larger loan.

That’s because your interest in calculated over the life of the mortgage, its an annual rate equivalent that accrues compound interest, not a simple ‘this year it’s X*y%’.

The interest is calculated on the outstanding balance at that time, so any over payment will reduce it.

Your monthly payment is calculated over the life of the mortgage, such that if the interest rate stays the same you’ll pay the same amount every month for the life of the mortgage.

go and stick the numbers in a mortgage overpayments calculator.

You’re bascially not paying the compound interest over the life of the loan which has a larger effect on the larger debt.

Reduce the term to 10 years the difference is £200, still in favour of the larger mortgage

Some dodgy maths going on

How can the size of the loan be a variable???

An APR of 5% means that to borrow £100 for a year costs £5. Or to borrow £100,000 cost £5,000. That’s how percentages work

As the over payment is the same then the only variable is the interest rate

You’re bascially not paying the compound interest over the life of the loan which has a larger effect on the larger debt.

Why is the affect bigger on a bigger loan?????

Use my calculator:

https://docs.google.com/spreadsheets/d/1cLH5NU8s4ghbiB7wlc_a1obAcjXdY59TZuW5jhStqjc/edit?usp=sharing

Because it is?

http://www.mortgagesexposed.com/

If you make the over payment on the smaller (higher interest) loan, it will pay off quicker (by several years) compared with the larger loan, so you can then switch the over payment to the larger lower interest loan.

You’ll still save more money over paying on the higher interest loan first.

An APR of 5% means that to borrow £100 for a year costs £5. Or to borrow £100,000 cost £5,000. That’s how percentages work

In Maths and finance yes. On STW, apparently not.

Because it is?

I spend a good part of most days talking about maths. This argument is new on me. Infact I’m taking it as endorsement of me being correct

🙂 Just bored now and haven’t actually bothered to do the maths – Obviously.

I’ve done the maths, pay off the high interest loan first with the overpayment and then switch it to the larger (lower interest) mortgage.

If you make the over payment on the smaller (higher interest) loan, it will pay off quicker (by several years) compared with the larger loan, so you can then switch the over payment to the larger lower interest loan.

That’s true.

An APR of 5% means that to borrow £100 for a year costs £5. Or to borrow £100,000 cost £5,000. That’s how percentages work

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

For those who think it’s better to overpay on the lower rate…..

Do any of you think you’d make a profit by borrowing on the higher rate (eg by increasing the mortgage) and using the cash to pay down the lower rate loan?

If so, I’ll lend you ten grand at 10% pa on condition that you lend it straight back to me at 2%.

How about you lend me 10k at 10% and then I lend you 50k and 2.1%?

Or how about you go on a mortgage overpayments calculator and fricking work it out?

Seriously how can you not get that the daily interest on his big loan is lots more than the lower loan?

Paying the big loan quicker saves him more money over time.

Seriously how can you not get that the daily interest on his big loan is lots more than the lower loan?

Consider the case when the interest rate for the larger loan is 0%.

In fairness footflaps has nailed it with regards the best option for the OP even if he still hasn’t mastered the concepts of compound interest, repayment:interest ratios of fixed payment loans etc.

Get rid of the smaller loan and then work on the bigger one, assuming they’re both of the same duration.