Best plan for equity loan?

SuzyRed

Morning all.

I have reserved a new build house and awaiting to exchange contracts. Due to finish in July. I am very happy :beer:

I would like to know the best plan for my equity loan. I am a sole buyer and I don't know if I will want to live in this house forever - so much could happen.

Rough numbers - house price £150,000. My deposit £7,500, equity loan £30,000, mortgage £119,000. They aren't quite accurate, if needed I can provide the exact details but that's an idea.

I want to make the most of the first 5 years. I work overtime (this is unlikely to dry up-I'm a nurse) which brings me in £400 a month. Once I have got over paying all the fees and other expenses and made sure I have a rainy day fund, how would this £400 work best for me? Overpay on mortgage? Put into highest saving account I can find? Half each? I understand I can only pay off my equity loan either in a lump sum or in 2 chunks so I want to be prepared for that.

Kynthia

I don't know about equity loans. However you'd be best putting extra money where the interest is best. If you can find a savings account that pays you more interest after tax than you are charged on your mortgage debt, then save your money there. However usually people find their mortgage interest is higher, so as long as they have enough savings to hand many would be better off using the rest to overpay their mortgage.

Is your plan to remortgage in order to pay off the loan?

SuzyRed

I was thinking by doing half and half I could remortgage and have a chunk to pay back. So £200 a month for 5 years is £12000 which is nearly enough to pay 10% back. I completely understand that the amount may change and that life might not work like this but I want to make sure I have some kind of plan in place.

It's all a bit like being grown up!!!

kingstreet

As repayment of the equity loan is dependent on the value of the property and you have the trade-off between 1.75% (in year six) fees on the equity loan v prevailing mortgage rates, flexibility is the key.

Reducing your mortgage is a good idea, but if for some reason you are unable to remortgage at the right time, you may wish you'd kept it all in savings.

No easy answer to this, I'm afraid.

SuzyRed

Thanks. I think i will aim to overpay some, and save some too.

I am very lucky to have option of as much overtime as I like, and I love work so I will make the most of it and try and do as much as I can in the first 5 years.