Help to Buy Vs Overpayments

sufjanspirit

Hi all...

I'm getting my head in a spin against where to overpay/save for with regards to the above. I will explain my thoughts below, and see if the theory works out....

Numbers First:

Monthly Payment: £600.00 (£5.45 of overpayment to make it a round number...OCD bout that where I can be!)
Mortgage Left: 145,125.77
Help to Buy Loan: 39,500.00 (repayable in 25% amounts, or whole amount)
Property Value: 198,000.00
Mortgage Left: 31 Years 0 months.
Mortgage interest rate: 2.99%

This is help to buy Scotland, which is different to the one in England/Wales (i.e. dont start paying interest after 5 years)

With the way the HTB works, I pay the borrowed 20% of the value of the property back when I sell the property. So as the value of the property increases, so does what I need to pay back.

Then there is the standard overpayments on the mortgage, which means less interest. I understand this part.

So am I right in saying that, I want to pay back (or save to pay back) whichever is higher - my mortgage interest, or the increase in value of the property?

Can someone with a better financial mind than mind tell me whether I am right or if I am wrong!

Thanks guys

anselld

sufjanspirit wrote: »

So am I right in saying that, I want to pay back (or save to pay back) whichever is higher - my mortgage interest, or the increase in value of the property?

That is roughly correct. The only problem is you have to make the decision before you know what capital growth and mortgage rates will be in the future.

Say you had saved 10k to make a pay off today.... you are choosing between paying off money you owe at an unknown future interest rate or buying additional equity with unknown growth potential.

Crystal ball time!