I have a mortgage on my primary home, which consists of two sub-account: one is for the original loan with about £30K remaining on it; the other part is the extra borrowing to build an extension - that part has about £40K left on it. These two parts are on different schedules (rates/periods) which are like this:
- Sub-account 1: about £30K balance, about £1K per month payment, current rate 1.05% (variable), no early payment penalty
- Sub-account 2: about £40K balance, about £500 per month payment, current rate 1.74% fixed until October 2022 with heavy early payment penalties, after which the rate goes up to 3.59% (variable).
I have extra money now that I can pay toward the mortgage to pay it out sooner. I have three options:
- Pay more toward the lower interest no-penalty sub-account
- Pay more toward the high interest part and pay early penalty; the early payment penalty is equal to the interest I would otherwise pay between the time of payment and October 2022.
- Wait until high-interest sub-account gets to no-penalty in about 1.5 years and pay more than
Intuitively (rightly or wrongly) I feel that I should keep saving for the next 18 months and then in October 2022 pay out as much as I can - however I'm struggling to get all the math to verify this.
Can somebody help me with the math here to determine the right option?
Note that I have no other debt and have sufficient other means to cover "worst case scenarios" (e.g. no job for 6 months, etc.)