Mortgage Deposit or Property Equity?

Smoggie69

My parents have offered to help us with the deposit for buying a house. We currently have a house and a mortgage. Does it matter if the money they give us is in a bank account or is used to pay off some of our current mortgage, giving us larger equity in our current house? Do lenders treat it differently if the money to be used against the next house is tied up in the property? I am thinking that paying it off the mortgage we have now would reduce the interest we are currently paying, and allow us to pay more off the capital.

kingstreet

Makes no difference.

However, if you pay it off the mortgage, then you can't sell, you'll find life more difficult if you then decide to let this property and move on.

Keeping the cash liquid would be better in that scenario, as you would not then have to raise money on the current property by remortgaging onto a formal BTL deal to get the deposit for the new residence.

Your call this, I'm afraid.

jerrivil

You are absolutely right paying off the mortgage would reduce the interest you are currently paying. It will allow you to pay more off the capital.

Smoggie69

Thanks. My main concern was seeing posts about showing mortgage lenders proof of deposit. Would this be a case of showing them the outstanding mortage on our current home and any offer we accept? I assume this would be done through the solicitor.

kingstreet

No. They work out for themselves the difference between selling price and existing mortgage. Proof of deposit is only requested if the source of deposit is given as savings or gift. If you put equity, it isn't normally verified.

ValHaller

Smoggie69 wrote: »

My main concern was seeing posts about showing mortgage lenders proof of deposit.

The reason that mortgage lenders have this concern is in case the givers of the money make a claim on the mortgaged property and claim precedence over the mortgage.

In your position, assuming you are planning to keep the present house, I would be getting parents to pay the money against the current mortgage rather than take it into an account from which money will go to the new property.

Smoggie69

Our current house is for sale at the minute, and we would like to move this year, depending of selling our house, etc. I guess having the money already paid off the current mortgage would avoid having to prove where it comes from.