HTB Deposit vs Mortgage Overpayments

sufjanspirit

Hi Everyone - not sure if this is the right place but its about paying off my mortgage as soon as possible so thought it fit well!

I am using the Help to Buy in SCotland to purchase my flat - all approved and just waiting for them to finish! However I dont know whether to overpay on the mortgage first or pay off the HTB loan first.

HTB Loan: £40k
Mortgage: £150k (Payments of £600 pcm)

These are obviously rounded up for simplicity, and are slightly higher than the reality.

I am due to get bonus/overtime soon, so all of this will be going to one or the other. Obviously overpaying the mortgage will reduce interest payments quicker, however as the price of the flat goes up (or down) that loan amount changes. I can pay that off in chunks of 10%

Does anyone have any words of wisdom? If ive missed any important information out, ill get back straight away!

Thanks guys

SS

edinburgher

Link to scheme details on government website

It's basically a 5 year 0% loan, although it appears that the loan amount will be recalculated each year.

At the end of the 5 years, it appears that you can pay it off based on current market value without incurring any interest, which looks to be quite a good deal. If you only want to pay off part of the loan, the minimum payment is a hefty 10% of *market value*, i.e. 10% of your home value. With the figures you've given, that will be £19k+

Even year 5-6 is ok (effectively 1.75% interest, although this may grow a bit if I'm reading correctly and your home increases in value).

Year 7 onwards? Make sure you're not carrying that loan, as it will be RPI+1%. I think 4% is perfectly reasonable to expect by then.

Personally? I'd be saving up to pay off the loan. If you want it gone by the end of year 5, you need to save something like £625/mth.

Sparx

You could overpay your mortgage in the first 5/6 years as much as you can to build equity, then once the RPI+1% kicks in year 7 I would try re-mortgaging the 20% EL in your mortgage.

It's what me and my missus are planning on doing when we move into our new build in June.