Porting and borrowing more. Help me work out which to overpay on?

[funfactjanetisme]

I just don’t know how to work this out and would be grateful for any help.

We are porting our existing mortgage to another property and borrowing more at a slightly higher rate. Our mortgage provider allows unlimited repayments so long as we don’t clear the balance (no danger of that any time soon).

Once we move we’ll have 2 mortgages.

Mortgage 1 (port): higher balance, lower rate. Approx £245k at 4.17% for another 4 years.

Mortgage 2 (new): lower balance, higher rate. Approx £45k at 4.74% for 5 years.

We plan to overpay by around £250 a month, but which will save us more? I can only find calculators that compare overpayment with savings, rather than comparing different overpayment options and how much interest they’d save us overall.

A few things to note: we expect to stay in the new property for a very long time, getting the mortgages in sync is NOT a priority, and as mentioned we can make unlimited overpayments. We just want to do whatever saves us the most interest. How do we work it out?!

It's as simple as overpaying the higher rate as you save interest on the amount you overpay. So overpay on the 4.74% mortgage. The balance and remaining term etc are not relevant.

Only caveat would be if there are any penalties for overpaying.

The other option is if you can put the £250 per month into a savings account which will earn you more than 4.74% (after tax, but you wouldn't pay tax if that's your only savings income as there is a threshold). There are some regular saver accounts linked to bank accounts which may do. You can then use that lump sum to overpay the higher rate mortgage and that will make/save you more interest.

Thank you! It seems obvious now you’ve pointed this out.

I have looked at regular savers but they seem to pay interest yearly, so it doesn’t add up to very much overall.

I would also overpay mortgage 2. Mainly because it’s a higher interest rate. But also because it’s “only” 45k so with overpayments, you will be able to pay it off relatively quickly compared to mortgage 1 & and thus only have one mortgage which to me would feel better psychologically than two smaller mortgages.

Thank you - this is how I feel but I wasn’t sure if I was being unwise.

Even if the regular savers pay interest yearly if the rate is higher than your mortgage rate it is saving more money for you :)