Help to Buy staircasing or overpaying mortgage

rumouri

I have been luckily enough to get on to the property ladder with the HTB scheme.

After 2 years now we managed to save up some money approx £12k, which can either put towards staircasing or overpayment for the existing mortgage, with a fixed rate of 3.24%.

I did seems the house price in my local area has seen a slight increase lately, i believe the share of 20% may now worth around £45k. Seriously confused which one is a better option to do with the spare cash. Or should I be better do nothing and keep those in saving account?

Any advise, pointer or case study will be welcome:beer:

REArmstrong

We are going through the process of help to buy on a new build at the moment, we went to see a mortgage advisor Monday and asked him the same thing do we save to pay of the help to buy loan at the end of our fixed 5 years. He was great and give us a couple of options. Run it for the 5 years interest free, it’s not costing us anything so no point doing anything with it. At the end of the 5 year term when the fixed rate ends borrow the help to buy amount on the mortgage pay of the government loan and then it’s completely gone. Leaving just the mortgage which works out better than paying interest on the loan and the mortgage. We will also be in the position of having a bulk amount in savings so he suggested we pay that off the mortgage. Hope that makes sense and helps a bit!

spriggsy

If you think the HTB portion is worth 45k, then the minimum you could pay off in one go would be 22.5k, or 10% of the market value of the house.

Unfortunately that's one of the downsides to HTB in that you can't pay it off in small chunks.

So in answer to your question, I would use the 12k to pay off a chunk of your mortgage.

amnblog

The view given to REArmstrong is a blinkered one.

Sitting out your free interest period on the H2B Equity Loan can be expensive if the property value is rising swiftly.

If our OP bought at £200,000 and the property is now worth £225,000, the 20% equity has risen in value by £5,000 and the 'interest free equity loan' is effectively costing 6.25% a year.

(Of course, if values are falling, the opposite applies)

As pointed out by Spriggsy, our OP needs to find half the H2B equity value to make any dent on that side. It might be an idea to wait until those funds are available.

rumouri

thanks for the opinion. And Amnblog are bang on with the figure :-)

Given the staircasing is 10% of the house price (which I wasn't aware of), there are potentially only two ways:

1. do nothing with the savings and put it aside and try to repay the £40+k in one go at the end of the 5 year 'interest rate' periods - as pointed out correctly, the rise in house price will contribute to the interest rate.

2. put the additional pot into overpayment, but the end of my 5 years mortgage, I will secure additional £40+K through the new mortgage and repay this way. Will this be suicidal act and put myself in unnecessary difficult situation as additional borrow require credit check etc etc.

any thoughts welcomed