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  • FIRST POST
    • LongoBongo
    • By LongoBongo 6th Jul 17, 3:21 PM
    • 3Posts
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    LongoBongo
    Pay off Help to Buy or Mortgage First?
    • #1
    • 6th Jul 17, 3:21 PM
    Pay off Help to Buy or Mortgage First? 6th Jul 17 at 3:21 PM
    Hi, wonder if anyone here can help. I'll keep the numbers nice and round.

    I bought a house last year and used a Help to Buy loan. I always knew I’d be able to pay the loan off with an expected inheritance. I now have the inheritance money.

    In short, my Help to Buy Loan is £80K, my mortgage is £100K and I've just inherited £100K.

    Now, ignoring early mortgage payment fees and future house price rises/falls, am I best off paying off the mortgage or paying off the HTB loan?

    I'm more inclined to clear the HTB loan and knock £20K off the motgage but might I be better off clearing the mortgage in full first?

    Thanks!
Page 1
    • kingstreet
    • By kingstreet 6th Jul 17, 3:23 PM
    • 31,913 Posts
    • 17,057 Thanks
    kingstreet
    • #2
    • 6th Jul 17, 3:23 PM
    • #2
    • 6th Jul 17, 3:23 PM
    Did you get £80k loan when you bought, or is the equity loan £80k based on current value?

    In addition, you can't have the equity loan if you repay the mortgage. It cannot be promoted to a first charge the HTB Agent once told me.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • LongoBongo
    • By LongoBongo 6th Jul 17, 3:32 PM
    • 3 Posts
    • 0 Thanks
    LongoBongo
    • #3
    • 6th Jul 17, 3:32 PM
    • #3
    • 6th Jul 17, 3:32 PM
    Thanks KS. I don't think the value of the house has changed so we took out £80k on a £400k house. It's a new build so after less than a year it may have even gone down in value a bit. I'd assume it's still £400k.

    Thanks
    • getmore4less
    • By getmore4less 6th Jul 17, 4:12 PM
    • 29,746 Posts
    • 17,788 Thanks
    getmore4less
    • #4
    • 6th Jul 17, 4:12 PM
    • #4
    • 6th Jul 17, 4:12 PM
    Now, ignoring early mortgage payment fees and future house price rises/falls, am I best off paying off the mortgage or paying off the HTB loan?
    you cannot really ignore them as they are critical to the better decision.



    Whats the mortgage rate.
    Whats the loan rate/rent.
    will the loan value inflate/deflate(ie. equity based)
    who pay the fees for paying of the loan.

    any ERC on the mortgage

    Are there any restrictions on selling while you have the loan?
    How do they change if you don't have the loan.
    • LongoBongo
    • By LongoBongo 6th Jul 17, 4:52 PM
    • 3 Posts
    • 0 Thanks
    LongoBongo
    • #5
    • 6th Jul 17, 4:52 PM
    • #5
    • 6th Jul 17, 4:52 PM
    Thanks GM4L



    Mortgage 4yrs left at 2.65%
    HTB loan - interest free for 4 more years
    Where we are is pretty stagnant and we're on a half built site so prices very unlikely to rise whilst builders are on site for 2-3 more years.
    HTB fees are, I think £12 a year for 4 more years.
    ERC on mortgage is £4,650
    • alex_163163
    • By alex_163163 6th Jul 17, 6:12 PM
    • 178 Posts
    • 106 Thanks
    alex_163163
    • #6
    • 6th Jul 17, 6:12 PM
    • #6
    • 6th Jul 17, 6:12 PM
    As kingstreet said above, I think I have read/ heard somewhere (could have been another thread on here!) that you cannot pay off the mortgage completely whilst still having the Help to buy equity loan against the house.
    If I was in your position, id pay off the equity loan, and as much off the mortgage as you can to avoid early repayment charges.
    • amnblog
    • By amnblog 6th Jul 17, 6:22 PM
    • 9,734 Posts
    • 3,760 Thanks
    amnblog
    • #7
    • 6th Jul 17, 6:22 PM
    • #7
    • 6th Jul 17, 6:22 PM
    Surely the key point is that you currently own 80% of the property.

    If you want to own 100% you should clear the equity loan.

    Smart if values are rising.

    Not smart if values are dropping.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • SuboJvR
    • By SuboJvR 6th Jul 17, 8:18 PM
    • 343 Posts
    • 238 Thanks
    SuboJvR
    • #8
    • 6th Jul 17, 8:18 PM
    • #8
    • 6th Jul 17, 8:18 PM
    Did you get £80k loan when you bought, or is the equity loan £80k based on current value?

    In addition, you can't have the equity loan if you repay the mortgage. It cannot be promoted to a first charge the HTB Agent once told me.
    Originally posted by kingstreet
    Does this mean that nearing the end of the mortgage term, if you've not done anything with it, you must remortgage at that point to absorb the HTB loan, assuming you've not had the money to pay it off sooner?

    I am not entirely sure what to do with mine. I think we will potentially remortgage to absorb all/some of it at the 8 year or so mark depending what happens with property values.
    • kingstreet
    • By kingstreet 6th Jul 17, 10:22 PM
    • 31,913 Posts
    • 17,057 Thanks
    kingstreet
    • #9
    • 6th Jul 17, 10:22 PM
    • #9
    • 6th Jul 17, 10:22 PM
    The equity loan term is the shorter of your mortgage term or 25 years.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • getmore4less
    • By getmore4less 7th Jul 17, 6:24 AM
    • 29,746 Posts
    • 17,788 Thanks
    getmore4less
    Thanks GM4L

    Mortgage 4yrs left at 2.65%
    HTB loan - interest free for 4 more years
    Where we are is pretty stagnant and we're on a half built site so prices very unlikely to rise whilst builders are on site for 2-3 more years.
    HTB fees are, I think £12 a year for 4 more years.
    ERC on mortgage is £4,650
    Originally posted by LongoBongo
    First assumption will be the mortgage was a 5y fix with a full term of ?????

    With a mortgage of £100k on a £400k house you should get a better rate than 2.65% problem is the ERC/fees will make it hard to find one with a low enough rate to get the payback in the 4y left.

    Similar issue with paying the ERC even on some of the mortgage the payback period is 21 months
    (what % is the ERC? £4650 on £100k is 4.65% on each £100 with ERC you pay £4.65 and save 22.1p per month)

    The next thing is can you time the start of any rises, OK you have a builder selling stuff to give indicators, if they started putting the £400k places up at £420 and selling that's your £80k loan up to £84k.

    Any early resales yet that give an indicator of new build premium

    I suspect any valuations for the loan will come back at or close to purchase price unless strong indicators of drops, like the builders dropping prices.


    OK you have an interest free loan but any HPI wipes that benefit out very quickly and will be even more unpredictable than interest rate.
    (you need the cash ready to pounce so if you pay off a bit of the mortgage how long to restore funds)

    Any payback of the mortgage over the ERC free amounts takes 21m to break even.

    alternative investments that can better the payback of mortgage should be easy to find but how much of the potential HPI risk can you cover?

    Come the 4 years you will be wanting to get that HTB nailed anyway as the interest kicks in at ??
    (you are a bit unusual in that your mortgage rates and HTB rates will be close, many will be at higher LTV/rates so have some margin to trade off against HPI or just don't have the choice to pay it off)


    Reduce the mortgage at the risk of HPI
    When you look at the HTB against mortgage
    over 4 years your min saving is (48-21) 27 months on £80k @ 2.65%, £4770 (some might be ERC free so save a bit more)

    as the savings don't kick in for 21 months that is 21 months of uncertainty.

    over the 4 years you just need 5% HPI to wipe out the savings.

    In a loose way you can think of paying off the HTB a bit like a fix rate, as you fix the cost of the debt at the current value, forever not just for a few years.


    The questions to ask yourself are

    If you could have borrowed that £80k at your low mortgage rate would you have done?

    If you could have borrowed the money and took the HTB anyway(for the cheap money) what has changed to make you think you should pay it off now?
    • brit1234
    • By brit1234 8th Jul 17, 12:16 AM
    • 5,155 Posts
    • 11,940 Thanks
    brit1234
    Prices are falling so wouldn't it be better to pay off the mortgage first. The equity loan would reduce with the falling prices so leave you less to pay off there later.

    However we don't know how long prices will fall, by how much or what new props they will put up to keep the housing bubble inflatted this time. At least they can't lower interest rates any lower.
    Scams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

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    • getmore4less
    • By getmore4less 8th Jul 17, 9:39 AM
    • 29,746 Posts
    • 17,788 Thanks
    getmore4less
    Prices are falling so wouldn't it be better to pay off the mortgage first. The equity loan would reduce with the falling prices so leave you less to pay off there later.

    However we don't know how long prices will fall, by how much or what new props they will put up to keep the housing bubble inflatted this time. At least they can't lower interest rates any lower.
    Originally posted by brit1234
    really, local markets may be different.

    the key is that anything over the ERC free overpayments take 21 months to recover any ERC paid

    use too much of the cash to reduce the mortgage and the OP then has the issue of funding the cash to pay off the equity loan if the market moves and needs to get in quick.

    over the 4 year period the window the OP has left, the savings on the mortgage get mostly wiped out by 1%PA HPI.


    timing the bottom may not be easy although OP does have the rest of the new builds to gauge the trend locally.
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