Offset mortgage/savings aibu Not to be able to work out which is the most efficient way to spend 6ķ on a car?

[Damnspot]

We have an offset mortgage. Currently on tracker rates of 5.25%.

Car finance to borrow 6k is 6,748 over 3 years, so costs 748, BUT we'd have part of the money still sitting in savings during that 3 years, meaning our mortgage would be lower.

OR do we just take 6k out of savings to buy the car outright which saves us 748, but we lose that 6k to offset against the mortgage.

Anyone very good with figures?!?

The interest on £6k mortgage will cost you £315 per year, so over 3 years that will be £945. It is likely to go up another 0.25% next month and not expected to be cut this year although it may come down next year.

The difference between the two options will be the difference between the two interest rates.

Sounds like your car loan is about 8% ?

£6k at 5.3% your monthly repayment will be £180.30
The total amount repayable will be £6,490.74.
Therefore keeping the money in the tracker would save you £490.74.

£748 - £490 = £258 better off in total buying outright if you don’t need the £6k as a safety net.

Thank you @EdinaCrump and @messybutfun

Really helpful. Hard to work out with compound interest etc

There’s no compound interest on mortgages.

It would be much too complex to factor in your actual capital repayment amount as this is based on the full outstanding amount of your mortgage which will be paid off over the total term.

Therefore you should stick to comparing how much interest you are paying in the two different scenarios, the capital amount being identical, i. e. £6k.

The effective interest rate on your car loan is about 4% per year, currently your mortgage is 5.25% and likely to increase although it could reduce within 3 years.