Should I buy more of my property of pay off more mortgage?

jk84

Hi all,

I currently have a 40% share in an apartment which the Northern Ireland Co-ownership Housing Association has a 60% share in. I bought at the peak of the market in November 2007 for £210,000. It has recently been valued at £110,000. I have £77,000 remaining on my mortgage.

So I'm wondering whether I would be better buying another 5% of the property for £5,500 or using it to pay off some of the mortgage? For the 60% share that is government owned, I currently pay about £300 per month rent but owning another 5% would reduce that rental payment to about £130 (as the rent would be calculated based on the new valuation). Or maybe I should be saving the money elsewhere?

Thanks for reading!

princeofpounds

You need to think about these things in terms of risk and reward.

Reward first. You don't state what the cost of your mortgage is, but for sake of example let's assume it is 4%.

With your 5500, if you reduce the rental payment by £170pm then you will save 2040pa or make 37% return.

So far it's pretty obvious you want to be paying off your mortgage.

HOWEVER, 2 points to consider

1) Risk - the rate on the mortgage might be variable, the rental rates might be subjected to certain changes in particular circumstances. This means that the static return might not be representative of the ongoing return. Only you know the details necessary to assess this at the moment.

2) The rent reduction mechanism. Will this happen automatically, or if you buy £1 more of the house, or is the full £5500 needed? Because if it happens without any money needing to be contributed it is not right to attribute this saving to the new infusion of money as we are now doing.