Paying off a loan with a mortgage payment

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Bryan99

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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?
 
25 euro x 12 is 300 per year, how long is left on the mortgage? if longer than 3 years whats the benefit?
 
27 years. That's what I thought, so it makes more financial sense to pay the mortgage over the loan.
 
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.
Click to expand...

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
 
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.
 
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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