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Student loan VS Mortgage

1982 Avatar
8y, 9m agoPosted 8 years, 9 months ago
Hi folks,

Bit of a money related question and wanted some peoples opinions as to what is currently the best way to proceed.

Ok so the situation is that I currently have approx £16,000 of a student loan and £105k of a mortgage. I am now in a position where I can begin saving up to pay off about 10k per year of one or the other. My head tells me I should be putting into the mortgage as its the larger amount, hence more spent on interest but currently the interest rate on the student loan is higher than my mortgage at 4.8% and the way things are going and the student loans tied to the rate of inflation not the bank of England interest rates, some people have predicted a rise to 5.4% next year.

Just wondering what people on here would do in the same situation?
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1982 Avatar
8y, 9m agoPosted 8 years, 9 months ago
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#1
Personally I wouldn't have borrowed the money in the first place, but that's just me.

Can't you pay some off both?
#2
[QUOTE=TheDoc]Personally I wouldn't have borrowed the money in the first place, but that's just me.
QUOTE]

Yeah that would have been nice but unfortunatly that was not an option.

Yes halfing the amount and paying both is an option, i just wanted to guage if there was any others in this situation and what they have done
1 Like #3
I'd be tempted to get rid of the student loan first, just so that I had one less debt to my name.
1 Like #4
Pay the highest rate first is the best rule.

Although if you can pay off lots of smaller debts quicker it may be better to do that for your credit rating.

Or put the money into ISA's (in your partners name too would help as there's a limit of £3,000 per year per person). You're likely to get a higher rate than you're currently paying so you'll be better off however according to your credit rating you'll still owe the money. Then when you decide to pay it off you can choose whichever is the highest rate.
#5
student loan first. at least thats the smaller of the 2 amounts if you pay that off first then you'll just have your morgage left which your gonna be stuck with for a good 20+ years anyway
#6
Your student loan is on a VERY low rate of interest compared to the Morgage. Get rid of the higher rated interst FIRST is the morgage THEN and only then tackle the student loan.
1 Like #7
is it not that your student loan is paid through your wages if earning above 15,000 (I think) so that should already be coming off your wage package if you work?
1 Like #8
allstar2
is it not that your student loan is paid through your wages if earning above 15,000 (I think) so that should already be coming off your wage package if you work?


Yep it is.

I'd pay off the Mortgage, likewise I have a student loan and extra money I have is thrown at the mortage or credit card.

The student loan is unsecured and such that if you are out of work, earning next to no money then the loan does not need payments made.

The Mortgage is for your house (obviously) and therefore much more important + the intrest rates and housing market are unpredicatable at the moment. Much higher risk
#9
TheDoc
Personally I wouldn't have borrowed the money in the first place, but that's just me.

Can't you pay some off both?


Thats not the most helpful of response is it?
#10
optombenno
Your student loan is on a VERY low rate of interest compared to the Morgage. Get rid of the higher rated interst FIRST is the morgage THEN and only then tackle the student loan.


he said the student loan was at a higher rate than the mortgage.
1 Like #11
optombenno;1596744
Your student loan is on a VERY low rate of interest compared to the Morgage. Get rid of the higher rated interst FIRST is the morgage THEN and only then tackle the student loan.


crow99;1596787
I'd pay off the Mortgage, likewise I have a student loan and extra money I have is thrown at the mortage or credit card.
The student loan is unsecured and such that if you are out of work, earning next to no money then the loan does not need payments made.
The Mortgage is for your house (obviously) and therefore much more important + the intrest rates and housing market are unpredicatable at the moment. Much higher risk



As an ex-financial adviser I agree. Pay as much off your mortgage as you can, but DEFINATELY use your ISA entitlement and make sure you have adequate savings to cover any unforseen circumstances - losing your job, off work as result of an accident - don't pay EVERYTHING off your mortgage, risking other things.

If you can save up to £10k, then pay £5k off your mortgage, build it back up to £10k again, pay another £5k off your mortgage, etc. etc. - basically, leave yourself the £5k buffer to cover unforseen circumstances. Always plan for the unexpected.
#12
cheers for the responses guys.

Does anyone know if the interest on a student loan is calculated daily or yearly?

Im not totally sure about the current mortgage i have but i would assume interest is calculated daily so any change in balance would translate into an immediate benefit.

Just wondering about saving in ISA and paying a lump sum or regular monthly deposits
#13
Well for an isa (mini) you can deposit a max of £3000 per year (even if you put in £3000, then withdraw £2000 you cant put anymore in, £3000 is the max input in any financial year)

maxi- you can pu £3000 cash plus the rest on shares (at the min i would advise against playing the market until it settles down)

if you pay one lump sum (say at 6th april) you will recieve a full years interest on the £3000 (or lump sum amount) but if you pay in monthly deposits you will recieve less interest
#14
crow99
Yep it is.

I'd pay off the Mortgage, likewise I have a student loan and extra money I have is thrown at the mortage or credit card.

The student loan is unsecured and such that if you are out of work, earning next to no money then the loan does not need payments made.

The Mortgage is for your house (obviously) and therefore much more important + the intrest rates and housing market are unpredicatable at the moment. Much higher risk



Agreed, that's why I said to pay it into an ISA, that way the money is there in case of loss of work or if interest rates increase then he can pay them wherever is costing him the most.
#15
I would check with you mortgage provider about payments towards the mortgage, just to check that there's no financial 'penalties' for making the payments - also check with them when the payments will be applied to the mortgage balance, as some providers will take you money but then not apply it until the end of their 'accounting period'.
#16
If your mortgage is charged interest on a daily basis I would put any extra money into that
#17
Very simple- pay off the highest rate first!!

You must have a good mortgage rate. If it a short term fix however, the equivalent rate over the life of the loan may well be significantly higher than the rate on the student loan... although somewhat impossible to predict future interest rates that far in advance.
#18
Over the course of its lending the mortgage will work out at a higher rate.

Also dont think its as simple as highest rate now due to the fact the the Student Loan is unsecured and earning thresehold dependant to be honest it would be at the bottom of my list of re-payments due to the risk.

However somebody has raised the valid point of checking how much extra you can pay into your mortgage etc..
#19
Student loan interest is calculated yearly as far as i know. Might be a good idea to work out how much interest is going on your loan every year and then how much they are taking off you on repayments.

With a £16k loan the chances are you might not even be paying off the interest every year. If it was me i would try to get the balance down so that your actually repaying some of the loan amount itself. Then just pay off an extra £1k or so of it every year.

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