# Paying off a loan with a mortgage payment



## Bryan99 (2 Jan 2013)

I've a loan for several thousand from my local credit union at 9.9%. I applied for a month off paying my mortgage last Feb. The bank has given me this FEb  off paying too (I didn't ask for this). 


My mortgage is on a tracker, costs around EUR900 per month and from what I can see it will increase by EUR25 per month if I don't pay this month.


Should I use the money I'd normally spend on the mortgage and put it against the credit union loan or ring up the bank and tell them I want to pay  my mortgage next month?


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## leroy67 (2 Jan 2013)

25 euro x 12 is 300 per year, how long is left on the mortgage? if longer than 3 years whats the benefit?


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## Bryan99 (2 Jan 2013)

27 years. That's what I thought, so it makes more financial sense to pay the mortgage over the loan.


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## leroy67 (2 Jan 2013)

In my opinion Bryan99, YES.

300 X 27 is 8100 euro, expensive 900 loan !!!


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## Brendan Burgess (2 Jan 2013)

If you have a mortgage with an interest rate of 2% and a Credit Union loan with an interest rate of 9.9%, you should pay off the credit union loan first, when you have a choice. 

A €900 repayment of the credit union loan will save you €90 per annum.  An additional loan of €900 on your mortgage will cost you €18 per annum.  So you will be saving €72 per annum for as long as you would have had the Credit Union loan.



> from what I can see it will increase by EUR25 per month if I don't pay this month.



The additional monthly cost of €900 over 27 years at 2% is only €3.60.  

For comparison purposes, the cost of borrowing €900 over 27 years at 9.9% would be €7.98

You can buy yourself an extra pint every month for the next 27 years, if you take the mortgage break. 

Brendan


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## leroy67 (2 Jan 2013)

Brendan,

OP states from what he can see his repayment increases by 25 per month if he takes the break, point I was trying to make is if that is the case why would he take a break when it will cost him 8100 over the next 27 years to pay 900 off a credit union loan now.


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## Brendan Burgess (2 Jan 2013)

Hi leroy

The hint is in the bit "from what I can see..."  


You are always better off paying a high interest loan off before a loan with a lower interest rate - assuming no penalties or charges. 

Your calculations ignore the time value of money. They also ignore the money saved by paying off the credit union loan earlier. 

Brendan


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