Extra 100 a month... pay off mortgage or

[Sandrabeachit]

Save it?

I only have 3k emergency fund and 5k car loan which I pay 100 off monthly.

Just wondering what you think is most sensible!

Pay off car loan
Make emergency fund 3-6 months worth of expenses
Pay off mortgage

In that order

The car loan is fixed so I can’t pay it off early or if I do there’s a fee. It’s on a very cheap rate. So that will stay as it is. Thought I should add it as info though as it’s still obviously a debt!

^^what she said!

Save it, try a savings builder type account like the one from Natwest. £50 a month gives you high interest without the need for a huge balance.

I do save about 300 a month as it is, this extra 100 I was thinking might chip into the mortgage a bit and cut down the term.

3k isn’t much of an emergency fund though

If you already save £300 then I would overpay mortgage.

Is your loan interest rate higher than your mortgage? If it is even if you do get charged it'll still be cheaper to overpay the loan and reduce the term.

So I'd go loan, then mortgage and continue with the £300 in savings.

Go £50 extra in savings until you build up a bigger emergency fund and £50 off the mortgage.

I would check to see if there still are early repayment penalties on the car loan and have this repaid or lowered substantially first.

Re the mortgage make what is called a capital repayment (i.e a lump sum) rather than overpaying monthly on a mortgage.

@attila why is a lump sum better than overpayment? Out of interest?

@AttilaTheMeerkat I overpay mortgage monthly and this comes off capital debt. Should I change to lump sum?

OP I would pay into mortgage. Look at overpayment calculator on money saving expert to see how much time it can take off your mortgage.

Overpaying your mortgage each month reduces the capital and the term.

I would speak to your mortgage lender first and foremost re any overpayment queries. Things have changed quite a lot since I was involved with mortgages and I would always look into getting the mortgage term reduced.

Overpay your mortgage! Ours allows us to take a break if we need to if we have made overpayments. You save a huge amount in interest by overpaying small amounts.
www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Complete no brainer. Overpay your mortgage. It reduces your term significantly and the savings in interest payments are huge. I shaved 10 years off mine this way. Reducing the term means remortgaging and therefore paying further costs so much better to overpay. You can always stop overpaying and switch to topping up savings if you really need to.

With our mortgage we save up and make a lump sum overpayment every year. It reduces the overall interest we pay. And I think reduces the mortgage term significantly.

I’m also now interested in why a lump sum is better than overpaying monthly. I was going to do both this year but haven’t made the lump sum yet

Caveat that different mortgages have different terms and conditions

Generally this is the difference between say overpaying your mortgage by £100 per month as opposed to by a lump sum payment of £1200 during the year.

The monthly overpayments may go unnoticed in your general bills etc, and the earlier the overpayment gets made in the term of the mortgage the more of an effect it will have on the overall mortgage interest. Eg lump sum payment of £1200 in January is 'better' than regular £100 monthly overpayments, which in turn are 'better' than a £1200 lump sum payment in December.

On the other hand, if you don't have much in the way of savings, it might be better to pay £100 per month into an emergency fund which you can dip into during the year if you need to, but then can use to pay a lump sum off your mortgage in December if your car hasn't broken down this year etc.

Tldr: All overpayments are good. Make whichever kind suit you and your individual finances best.

@MonaChopsis that’s great advice thank you

@Thehop thank you, and you're welcome!

Sandrabeachit in terms of advice specific to you.You have a good amount of savings, but not a 'comfortable' amount.

Assuming that your car loan has a higher APR than your mortgage. I would recommend looking at whether your car loan would penalise you if it was paid off in full early*. If it doesn't, save the £100 per month in an account with as high interest as possible (it won't be much unfortunately). Once it reaches the level at which you could pay off your loan early in full, do so. If there is a early repayment penalty, check how high it is versus the APR of the mortgage. If it is lower, do the above. If its higher, do the below.

Assuming the APR of your mortgage is higher than that of your car loan. In your position, I would want a little more in savings to provide an emergency buffer. So personally I would save the £100 per month in an account with as high interest as possible, and then make regular lump sum payments from that (eg every time the savings account reaches a balance of £1000, transfer £500 into your mortgage account - you can of course set the amounts to whatever you want!)

*some personal loans penalise partial/monthly overpayment but can be paid off in full without an additional penalty... If you have one of those, save up to pay it off.

I currently overpay my mortgage each month. This had reduced the length of term significantly already, however l know l won't be able to keep doing it as my income will be reducing soon.