Financial advice/Mathematician needed

davilown

Right, I still believe that house prices have a fair way to go till 'bottom' is reached, but I have a question for somebody to analyse and answer if they have the time - would be very grateful!

Option 1

I buy a house next week for £200,000. I have £15k deposit, a mortgage for £120k and a government home loan for £65k.

Mortgage is fixed for 10 yrs at 5.99%
Equity government loan years 1-5 0% interest, no repayment
6-10 1.75% interest only payment
11-25 3.75% interest



Option 2

I buy a house next week for £200,000. I have £25k deposit, a mortgage for £175k.

Mortgage fixed for 10 years 5.99% then variable.

My question is, what would work out to be the cheapest option - my maths is good but I don't understand interest/compound interest etc, assuming the house price in ten years is the same.

Thanks for your help!

8gate

I'd go with Option 2, as Option 1 will leave you £10k short....

davilown

8gate wrote: »

I'd go with Option 2, as Option 1 will leave you £10k short....

many thanks

Jonbvn

8gate wrote: »

I'd go with Option 2, as Option 1 will leave you £10k short....

I'd go with the very low interest gov't loan - Option 1.

CLAPTON

davilown wrote: »

Right, I still believe that house prices have a fair way to go till 'bottom' is reached, but I have a question for somebody to analyse and answer if they have the time - would be very grateful!

Option 1

I buy a house next week for £200,000. I have £15k deposit, a mortgage for £120k and a government home loan for £65k.

Mortgage is fixed for 10 yrs at 5.99%
Equity government loan years 1-5 0% interest, no repayment
6-10 1.75% interest only payment
11-25 3.75% interest



Option 2

I buy a house next week for £200,000. I have £25k deposit, a mortgage for £175k.

Mortgage fixed for 10 years 5.99% then variable.

My question is, what would work out to be the cheapest option - my maths is good but I don't understand interest/compound interest etc, assuming the house price in ten years is the same.

Thanks for your help!

Assuming you really meant that you would pay 25k deposit in option 1 i.e. so you had a total of 200k then obviously the first option will cost you less as you pay nothing towards the government loan for the first 5 years then only a low rate of interest thereafter.
Basically it's the difference between paying a mortgage of 175k and one of 120k.

So what are the catches here?
Well it is a very generous scheme
The main thing to watch out for is that you are only buying 75% of the equity. No real problem if the house price doesn't go up but a real problem if it does as the governement will own 25% of the increased price and not 25% of the original price.

davilown

CLAPTON wrote: »

Assuming you really meant that you would pay 25k deposit in option 1 i.e. so you had a total of 200k then obviously the first option will cost you less as you pay nothing towards the government loan for the first 5 years then only a low rate of interest thereafter.
Basically it's the difference between paying a mortgage of 175k and one of 120k.

So what are the catches here?
Well it is a very generous scheme
The main thing to watch out for is that you are only buying 75% of the equity. No real problem if the house price doesn't go up but a real problem if it does as the governement will own 25% of the increased price and not 25% of the original price.

Many thanks :beer:

PasturesNew

I think it's outrageous that somebody who can afford a £200k house has a govt home loan!

The world's gone mad. Completely mad.

They could have used that money to build a poor person's house.

mewbie_2

PasturesNew wrote: »

They could have used that money to build a poor person's house.

200k IS a poor person's house. Arf, arf.

PasturesNew

mewbie wrote: »

200k IS a poor person's house. Arf, arf.

pfft.

A poor man's house is £50-60k tops.

mewbie_2

PasturesNew wrote: »

pfft.

A poor man's house is £50-60k tops.

I was trying to make a point about inflated prices, not irritate the forum's most respected member.

PasturesNew

mewbie wrote: »

I was trying to make a point about inflated prices, not irritate the forum's most respected member.

You didn't... I think they're off doing interesting stuff today.

Anybody to be respected wouldn't be on t'Internet in the middle of a bank holiday Monday!