Over pay loan or mortgage

[Ganymedemoon]

Wanting opinions of people who are more money savvy than me or my DH!! We have a mortgage with 2 sub accounts, one expires early next year which we will hopefully pay an ERF and get a new deal with the same provider this week ( circumstances have changed so not convinced we would pass affordability checks with another provider).

The other part of the mortgage is due to end August 2025 so a few years away. We also have a loan that we will pay in 3 years. My original plan was to over pay the loan to repay it in 18 months. However with all the uncertainty with the likely recession, interest rates going up, would it be better to actually over pay the mortgage that's going to end in 2025? I think my cap for over payments is 10% We have no idea how much interest rates will go up and this worries me. The loan is obviously static but paying it off early will save us £350 a month. Undecided what to focus on.

What do you see happening in a few years time? What are the broader plans? This decision is one that needs to be based on multiple things

1. on the one hand - The advice is always to pay off the more expensive debt first which is presumably the lawn. However this compares between unsecured debts such as lawns and say credit cards so yes absolutely be of the more expensive debt first.
2. however a mortgage which is a secure debt is much much longer and the low interest rates in comparison actually build up to a substantial amount of payment over time. So any overpayment you make towards the mortgage not only it’s into your capital owed to the bank but also decreases the amount of interest you pay a longer term. So Overpaying alone and over paying a mortgage are not alike for like comparison based solely on interest rates
3. so plug the numbers into a calculator for instance a mortgage overpayment calculator and a loan overpayment calculator and see how much money you save in the long run or the medium term and you could base your decisions on that.
4. Then consider what you would like to do in a few years time and what other monthly outgoings and dates you have. For example if that loan is your only significant monthly outgoing and in a few years time you want to upsize your house or remortgage and the bank will do affordability checks it might be worth using a remortgage on mortgage calculator to plug-in your projected salaries and your projected equity at that point to see very roughly what rates you might get with and without those monthly loan payments. If it turns out that actually eating down your mortgage balance and getting a higher equity in the house serves your interests better and that monthly loan payment doesn’t actually impact your affordability at all then by all means overpay the mortgage and get more equity in your house .

in summary I think comparing just the interest rates on the two is a bit of a red herring and you need to do these comparisons and see what works best. Once you have an emergency stash set aside which I am presuming you do I would always overpay the mortgage down and increase equity in the house simply because it is such a long-term debt and a significant amount of interest is paid on what you owe despite the historically low interest rates currently

My dictating messages means iPhone has made “lone” into “lawn”.

ah well. You get the gist.