Extra Loan Payments Vs Extra mortgage Payments?
Hi
I am trying to figgure out which is better long term, to pay extra payments on my loan or mortgage.
My loan started on 06/02/08 for £11,000 over 62 months with an interest rate of 6.55% = a monthly payment of £216.79
My mortage rate is 5.01% and i have an outstanding balance of arround £64,500
At present i have arround £150-200 fluid cash i could use to lower the balacnce on either of the above and wondered which one you would use the money to lower?
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The loan of course because it has a higher interest rate
If it was me, then I would do the loan because:
1. The loan amount is lower.
2. Higher % rate.
3. By clearing the loan, you can than make over payments on the mortgage from the money you was paying off the loan.
But check with the loan and mortgage terms in regards to over payments to see what the maximum is and the penalty charge for going over the maximum.
As interest rates have dropped I am in a similar position and am paying off my loan early - this will free up more cash monthly which I will then pay off my mortgage. In your case once you have paid off your loan you would be able to pay approx £400 a month of your mortgage.
There is no right or wrong way to answer the question just personal opinion.
Many loads do NOT offer the ability to pay off extra and if you do they often take extra charges for paying off early! if this is the case put the money to the mortgage which often has Limitedoverpayment penalties if any!!.
if it were a credit card then I would tell you to do the credit card but almost all loan are for fixed periods wand fixed amounts and cannot be altered without early redemption and often 3 months interest as a penalty!!
As both accounts are locked for a set time so regardless you will pay an exit fee.
Pay the one with the highest interest or lowest balance which in your case is the standard loan. The sooner you pay this off the sooner you can spend money on paying off your mortgage.
For me, I tend to pay off the lower balance one first since I get it out of the way quicker to add to the other longer term one.