paying onto loan v's morgage

[auntka]

hi andie_pandie
we are trying to get ahead with a Personal loan and our morgage the thing is which would make more sense?
we have a personal loan of around 10K and a morgage of around 160K, we are expecting aproximatley 8k to come in soon from inheritance and arent sure which would be a better option paying it onto the loan at 14.2% or onto the morgage that is 8.82% im thinking that we would be better on the loan as it will almost clear it but DH thinks the morgage due to the interest rate?
thanks for any help you can provide

[andie_pandie]

Hi Auntka

I have done some rough calculations for you:

Personal Loan $10K @ 14.2% = Interest per yr $1420
Mortgage $10K Reduction @ 8.82% = Interest per yr $882

Hence the difference in interest $538 per year, it is better in your pocket than the banks.

With your mortgage first of all you have to see if you are allowed to deposit $10K as some loans you are limited with. If you are allowed your balance will come down by $10K, however your repayments may remain the same even with the reduction. You will need to check with the bank if you want to do a capital reduction.

I hope the above info helps, I can't tell you which is the best option however if you see the figures then you can make that choice.

[auntka]

thanks andie_pandie that helps alot we can make the payment onto the morgage but since it will save alot more on the loan looks like that may be the way to go as after its paid out the extra payments for it can stay on the morgage

[andie_pandie]

It is a good idea to put the money that you were paying on the personal loan onto the mortgage once finished as you are already in the habit of paying that money out. Hence then the home loan will be reduced a lot sooner as a consequence.