Pay off debts or pay down mortgage to help repay equity loan?

paulburns1984

Retireinten said:

I am absolutely not a Help to Buy expert.  What is the interest rate of this and your mortgage? When remortgaging, will you want to shift the help to buy loan to this or does that have to be kept separate? I think interest rates will decide my next step here alongside your options for remortgaging and dealing with the help to buy loan.  

The interest on the H2B loan is really quite low, around 1.5%, and mortgage is currently 2.4%.
The issue with the H2B loan is although i loaned 54k, what you pay back is the percentage of your house value at the time. So the 54k was 20% on purchase. In five years tiem 20% may be much more, so that's why was considering trying to pay this off as early as possible. Lending more at remortgaging may be a way to pay off the H2B at that point. Of course if house prices drop than I would pay less than the 54k back - unlikely though of course.

So this was why I was considering paying mortgage down prior to student loan and CC, and then techinally have more of phouse paid off by time remortgaging comes round to be able to lend more to use this to pay off the H2B. Hope that makes sense.

monetxchange

I'm at the start of the equity loan process at the moment and my broker has advised me they tell people to get rid of the loan as quickly as possible. So maximise lower costs in the first five years, save up plenty and then you can hopefully remortgage and dump it onto the mortgage rather than still have the loan or a large part of it. Main reason is, as you say, the squeeze will come if and when you decide to sell it - you want to have as much of the property as possible so you don't lose out on profit.

I know it may be too late now the interest has started accruing, but saving up to reduce it should be a focus. Obviously don't reduce pensions or anything rash like that. Just look closely at your budget and ensure you have sufficient emergency savings in place before you start stacking up as much as possible on this. From memory you need something like 10% minimum of the loan value saved up to make a direct payment to it.

My advice is a bit anecdotal, but definitely worth researching for yourself how you can best maximise your budget going forward.

Househelp

I’m not expert on debt but I have just got rid of my Help to buy equity loan for a similar value to yours, also at year 3. I didn’t wait for year 5 as I could afford to do it early and whilst I may pay more interest I didn’t want to risk My house increasing in the next 2 years. 

Two things I found really interesting, the bank valued my house at 275K so after I added 52K h2b to my remaining mortgage they gave me a good rate and classed it as 85% LTV. 

But the RICS valuation it was 260K as they value it so the property would sell immediately. This I found really interesting as the bank accepted despite the different figures. 

My repayments only increased by £100 so if you can do it early I would recommend.