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Morning all !
We've got some spare cash in our household (enough to buy a very nice bike, but I'm trying hard not to)
We have 2 mortgages active on the house; one is interest-only and the other is a tracker (not far over base rate). Under 10 years to run but we'd like them done early if we can
Which is best to pay off (only a small chunk) ?
One interest and one a tracker are two separate things. Is one interest only and one repayment both on a tracker??
First question is...
Which of them allows overpayments ? And at what rate/charges ? Some simply do not.. .some allow but charge, some are completely free.
If you have no repayment vehicle in place for the interest only element, endowment, equity ISA, a classic Lamborghini in the garage or Rembrandt hung on your wall, then pay off the interest only element if your mortgage rate allows.
Assuming all other things are equal / allowed, the one with the higher interest rate.
^ this is not correct IF no repayment vehicle is in place. If a repayment vehicle is in place and is on target then pay off the highest rate.
The one with the highest rate and/or longest term, presuming you have rep vehicle, if not then the IO section.
Yeah, we can repay the interest-only one (endowment will partially cover it but we can access money for the remainder - probably raiding an ISA though).
*ahem* 😳
MrsP sorts all this out normally and frankly I'm uninterested to the point that I don't really know our arrangement - is it possible that repayment and interest-only are being served by the same mortgage ? (the paperwork I've found this morning implies that).
MrsP thinks we should pay off the interest-only bit and I can't really see the benefit of one over the other, unless keeping an ISA "in" by paying off the interest only loan is a clincher
Does that affect the answer to my original question ?
Pay off the interest only element if your rate allows, if a tracker rate it more than likely will. Your current repayment vehicle is not on target and will have to use your savings to cover a shortfall. Paying over payments to the interest only element now saves your savings - I am sure you have not saved in the ISA to pay off your mortgage!?!?. On a like for like lending, term and rates etc, interest only is more expensive than a repayment mortgage.
Thanks - that's all very well and I bet logical too, genesiscore but surely you realise it would mean that my wife is correct
bah
😀
If the small amount is £3k to £4k I'd just stick it in your savings/ISA account so you can get at it if needed.
t-m-m, we've got a bit of a stash for emergencies. This extra bit ought not to be needed anytime soon
Given all that, so long as you’re allowed to make payments off either one, you probably best off paying down which every has the higher interest rate, but the devil is in the detail.
What are the two respective rates? Are there any overpayment penalties?
I think they're both served by the same mortgage and no penalty
If they're both at the same rate and there's no penalties then it wouldn't make any difference what you pay off.
But can you get a higher rate for your money in an investment? you may be better off buying a 2 to 5 year fixed term investment like a bond. That way it earns you more than you'd have saved in interest, it won't be thousands but it all helps pay off the IO bit in the end.