I have a capital & interest repayment mortgage that's split into two. The outstanding balance on the original is approximately £100k on a 2.5% variable interest rate, monthly repayment approx £700. The further advance is approximately £34k on a 4% variable interest rate, monthly repayment approximately £330.The remaining term is approximately 14 years.
If I make overpayments of £800 per month, which loan do I begin to repay first and at what point (if any) does it make it sense to switch the £800 overpayment to the other so I am paying as little interest as possible on outstanding balances. eg £800 per month off 4% until balance is at £10k, then switch overpayment to 2.5% mortgage until £20k remains, then switch back etc. Or do I split the overpayment, eg £400 off each etc.
For clarity the loans are:
- £100,000 at 2.5% (variable), payment is £700 / month
- £34,000 at 4% (variable), payment is £330 / month