Is overpaying with a view to releasing equity in the fututre sensible?

chilabe

A family member was kind enough to lend me £30K towards my deposit. It was lent interest free on the condition that I pay it back in one bullet exactly 5 years after it was first lent to me. In order for me to make this payment I am putting £500 in to a savings account each month that has an interest rate of <1%.

I am now wondering if it is a sensible option to overpay my mortgage by this amount every month and then release the equity by remortgaging when the 5 years is up. My current mortgage rate is 2.89% fixed for 5 years. Therefore the interest saved on the extra amount I am paying in will be greater than the amount I could earn in any savings account that I have found.

My current mortgage has no overpayment fees apart from if I pay it off in full over the next 3 years. This means that switching to an offset mortgage is not a viable option for now.

Any thoughts or advice appreciated.
Cheers

getmore4less

Does your lender know the deposit was a loan?

Thrugelmir

The obvious question is will your existing lender release the equity. As you may well have to justify what the money is going to be used for.

Might as well buy premium bonds every month and use the winnings to pay down your mortgage.

chilabe

It was only a fraction of my deposit. I included the loan agreement that we drew up within the supporting files for my mortgage application. The loan agreement states that it will come behind all other commercial loans in any claim against the property. The loan agreement also states that it doesn't have to be paid off until the end of the year 2040. So short answer is yes the lender is aware of this.

chilabe

Do people generally have a problem releasing equity this way?
I will likely be remortgaging after 5 years when my fixed rate is finished to find a better rate anyways.

AnotherJoe

There a risk to your plan. Suppose your financial circumstances change and you are not able to remortgage?
Don't take advantage of the person who very kindly gave you that loan, save it as you are doing now so that there's no doubt you can pay it back

BTw you've been somewhat inconsistent, you said first that the condition was it was to be paid back in 5 years, and then not until 2040.

ViolaLass

You should be able to get much more than 1% on the money. Get better savings accounts and then you don't have to count on the bank allowing you to reborrow it.

chilabe

The person who lent it to me would never feel I am taking advantage of them, and I would never do this without discussing it with them first. The loan agreement states that the full amount has to be repaid in 2040 in order to stop the mortgage lender from seeing it as an immediate financial liability against my situation. The agreement I have also states that after 5 years there will be a small amount of interest charged against the loan. The terms that we discussed differed slightly and we have an informal agreement that the money will be paid back in 5 years, hence the inconsistency.

getmore4less

you lied to your lender.

Richey_

Fraud!

People like you push up interest rates for the rest of us, as well as insurance premiums etc.

You want advice on how to lie and defraud, erm no! You charlatan....

chilabe

getmore4less wrote: »

you lied to your lender.

How so? My legal liability is to not pay this amount back until 2040 as is stated in our loan agreement. I am not legally obligated to pay this amount back until 2040. If we set it up so that it was interest free for the first 5 years and I therefore said "i would like to pay you back within the 5 year period".

My lender has full knowledge of my financial liabilities. At no point have I told any lie nor have I hidden anything from my lender.