Repay Help to Buy loan or overpay mortgage?

benkil

Hi,

Ive recently bought my first home using the Help to Buy Equity loan.

The house was £200k and we borrowed £150k from Halifax at 2.17% fixed for 5 years and took £40k on the Help to Buy loan.

We are in a position to make additional payments each month but is it better to make overpayments to the mortgage over the next 5 years or should I target reducing the Equity Loan balance?

Thanks!

TrickyDicky101

Minimum chunk you can repay on HTB Eq Loan scheme is 10% so assuming your overpayments are less than this each month then the question becomes 'can I earn more interest in savings (after tax) than I am paying as interest on the mortgage with these overpayment amounts'.

Do you have access to savings vehicles whereby you earn more than the 2.17% mortgage interest (after tax)?

CarlaAEl

Is it advisable then to aim to pay off the HTB equity loan in greater chunks to avoid the £200 re-evaluation fees each time? I understand that after 5 years this loan incurs 1.7% interest in year 6.


Is there a way to monitor if the value of a property has reduced and therefore the equity loan share? This I understand that this would be the moment to look to re-pay as much as possible (within 10% increments)?

Thrugelmir

Overpay the mortgage for 5 years to build your equity in the property. While maximising the interest free period of the HTB loan. Then you can remortgage to redeem the HTB loan either in stages or in full at a later date.

CarlaAEl

Thank you
With this in mind is it advisable to take out the full 40% allowence for the HTB equity loan and therefore the minimum mortgage?

OR Maximum mortgage and minimum HTB loan

The risk is that if the property goes up ill be paying more on the HTB loan than original borrowing, but also could be the other way round should property value drop. Is there a way to monitor property value estimations within re-evaluating it each time (paying £200) before paying off part or all of the HTB loan?

Mortgage_Adviser

It is advisable not to take out an equity loan at all if of course possible.

getmore4less

Minimum staircase is 10% of the property value.

As you got 20%(£40k) HTB then you can only do it in 2 x 10% (£20k+-) chunks.

LMS94

So to confirm, it would be better to overpay the mortgage each year, saving interest on my mortgage payments over 5 years and then remortgage to include the HTB in one go?

Would this still be beneficial to me as I took out a 2 year fixed with Nationwide?

getmore4less

Also Depends on how much house prices are going up down.

The HTB benefit is more than just the interest free part there is also the rest of the debt on 75%LTV HTB deal rather than 95% regular deal

You have to run some numbers rather than just guess.

kingstreet

We don't know what is going to happen in the future, so if you are going to go the HTB equity loan route having an exit strategy in place from day one is a good idea.

Whether this is overpaying your mortgage or adding to savings (or both) is a matter of detail for consideration. The important thing is to at least have some plan now, to enable you to have options later.

sal_III

My mortgage rate is 1.59% with 10% / year no penalty over-payment, so what I'm doing is shoving all excess cash in various savings accounts from 1.5% to 5% The end result will be more or less zero-sum considering the hassle.

But this allows me to build up the 10% for the equity loan staircasing without losing money. So when eventually I accumulate 10% I will check the property prices and trends and decide, whether to staircase the equity loan (if the prices are rising) or hold off if the prices are falling.