Paying off H2B vs lump sum overpayment

Spunog

Hello and thank you for reading.

I am in a slight dilemma and I hope there is a somewhat obvious solution as I might be too close to the wood to see the trees.

I am currently in a position to pay off my H2B loan on my apartment, which has appreciated in value by 40% and I anticipate that this will not drop anytime soon due to location (near Media City). The 5 year interest free term is up and I have started repaying at 1.75%, the terms say that the IR increases by 1% for each year the capital amount goes unpaid.

The repayment will cost me c. 35K including fees etc. to buy out the governments share of my flat at its current value. Obviously if the value keeps increasing so does the amount I must pay back since its 25% of the current MV.

My question is, am I better to pay off the H2B loan in full or make a lump sum repayment on a mortgage which has £70K left on it at a LtV rate of 54%, thereby reducing the amount of interest I will be repaying? I have just moved off a fixed term to standard variable and I am trying to plan the best course of action before I move off the standard variable again.

I may be missing something obvious in terms of which is the correct option and I would be grateful for any advice.

Thanks

getmore4less

Check the interests rate increases they will be quite low.

Are you planning to move?

remember the interest you pay on the H2B is on the original amount where as you can pay off more of the mortgage with the money you need to pay of the H2B.

It becomes a number crunch to work out what the appreciation needs to be to cover the costs of buying out the loan.

Spunog

Not planning to move in the near future.

I had thought that it would be a number crunching game alright, I’m ok with that, I just wondered if one option was an obvious choice over the other and it seems not. Thanks for your help!

kingstreet

It's RPI + 1% so starting at 1.75%, RPI of (eg) 5% means next year's rate is 1.86%, the year after 1.98% and so on...

If it was under HTB, the max was/is 20% not 25%.