Is it better to pay off personal loan or overpay mortgage?

[fuchiaknickers]

I am sure that I have read the advice somewhere to pay off all other debt before overpaying mortgage, but I can’t quite rationalise it in my mind for my situation.

I will need to remortgage in 2026.
My loan will be paid off in 2027.
I am putting an extra £200 a month aside at the moment, and I’m not sure whether it’s better to use it to overpay the personal loan early i.e. before the time comes to remortgage, or whether to use the money to pay off a chunk of mortgage (especially considering how interest rates are).

Any thoughts or advice? Do general principles apply here?

Loan interest rate is fixed at 6% btw, it’s all been calculated out in advance and added to my loan balance.

What do you owe on your mortgage? How much is your house worth? ie. what LTV will you have when you come to remortgage?

If paying off a lump sum of savings before remortgaging puts you into a lower LTV bracket that will get you better rates, then do that.

Otherwise, repay the 6% loan as that’s a higher interest rate than your mortgage or a savings account at the moment.

Thanks for replying.
At the time of taking mortgage out it was £170k and when I remortgage it will be £150k (if I don’t overpay a lump). 90% LTV. With house prices dropping I think it more likely this will go up than down.

Having the loan won't stop you getting a remortgage as long as you can meet affordability criteria.

But if you pay extra towards the mortgage instead, it could help you get into a better loan to value bracket, which will mean a better interest rate, but this also depends on the valuation at the time of remortgage.

However, you will pay less interest on the loan if you overpay, what you say about all the interest already being added to the loan isn't true, or it shouldn't be as that's illegal. If you settle it early they have to rebate all but 2 months of what interest is payable on the full term.

Thank you, that’s interesting! I do know that I would get a refund if I were to settle the loan early, however I cant figure out how much of a refund it would be, and whether it would be worth getting that vs money off the mortgage.

I bloody wish they taught us this stuff in school.

So, you can either overpay and save paying 6% interest on the loan.
Or you can overpay and save paying ?% interest on the mortgage.

Unless paying down the mortgage is going to give you better access to mortgage deals, pay whichever loan has the highest interest rate. Almost certainly the personal loan, but I can't see your mortgage rate stated.

Agree with Cats. Focus on paying down whatever's costing you the higher interest rate right now.

Are there any penalties for paying off the loan early? If not, I would focus on higher interest rate debt but I think you do need to check small print. If there are penalties then you might be better saving the money if the interest rate you can get is higher than the mortgage interest and then use that to pay off a lump sum when you remortgage.

Thank you everyone.

Sorry mortgage rate now is just 2.7% but obvs likely to be much higher when I come to remortgage.
I thought it might be better to try and get a better interest rate on the mortgage as it’s long-term debt, whereas the loan will be gone soon even if I don’t overpay it.

Lots to think about here, thanks everyone!