Pay a chunk off the mortgage or buy a bigger share of part rent/part buy flat?

JillB

I bought a flat under the government's part rent/part buy scheme four years ago. The landlord owns 60% of the flat and I have a mortgage for the other 40%.

I have inherited £10k and am not sure whether to a) pay £10k off my mortgage or b) try to buy another £10k share in the flat from the landlord - or even c) stick it in a building society; although this last option is probably not the most efficient.

I can't quite get my head around whether options a) and b) amount to the same thing. Anyone got any ideas on what the best option is please?

eddddy

JillB wrote: »

a) pay £10k off my mortgage or b) try to buy another £10k share in the flat from the landlord - or even c) stick it in a building society;

You take the option that you believe will deliver the highest return

- Let's say your mortgage interest rate is 5% per year.
- Let's say you expect the value of your flat to increase by 10% per year.
- Let's say building society interest is 1% per year.

So you buy a bigger share of your flat, because that gives you the biggest return - 10%. (Also, presumably it reduces your rent bill.)


Obviously, you have to substitute in your own numbers (and your own expectations of flat price increases) - and pick whichever option gives the biggest number.

BrassicWoman

factor in legal fees for staircasing and I would try and buy as few, big chunks as I could, rather than many little ones.

Windofchange

Isn't it that case that you only get three payments to staircase to 100% ownership? If so, this would be like using one of your three shots. Probably after the legal fees, a new mortgage application, contract fees etc etc your 10k would very quickly turn into 5k or so. I would probably save it as a rainy day fun, so option C for me. If you have one of those already I'd stick it on the mortgage.

JillB

thanks all for your input