How to invest to prevent the H2B hammer after 5 years

RetSol

Thrugelmir said:

Rocksolid said:

Thrugelmir said:

Overpay the mortgage for the 5 years then refinance. Investing is for the longer term. As market prices rise and fall like the tide. There's no guarantee of the outcome in exactly 5 years time. 

Thanks, but what do you mean with the 1st sentence?

Pay down the mortgage. This creates additional equity in the property. Which will enable you to remortgage and settle the HTB loan. 

Whatever the relative merits of overpaying, saving and investing, one of the best pieces of advice I have had came 30 years ago from an older friend who pointed out that, once you have used a sum of money to overpay the mortgage, you cannot (readily) spend it on anything else.  

Thrugelmir

RetSol said:

Thrugelmir said:

Rocksolid said:

Thrugelmir said:

Overpay the mortgage for the 5 years then refinance. Investing is for the longer term. As market prices rise and fall like the tide. There's no guarantee of the outcome in exactly 5 years time. 

Thanks, but what do you mean with the 1st sentence?

Pay down the mortgage. This creates additional equity in the property. Which will enable you to remortgage and settle the HTB loan. 

Whatever the relative merits of overpaying, saving and investing, one of the best pieces of advice I have had came 30 years ago from an older friend who pointed out that, once you have used a sum of money to overpay the mortgage, you cannot (readily) spend it on anything else.  

Saving in itself is a good discipline to impose on oneself. Over time can become addictive. 

dimbo61

An old bloke down the pub once said 
" Compound   interest is the eighth wonder of the world. He who understands it,. earns it ; he who doesn't pays it " 
This applies to the interest you pay on a mortgage ( debt of death ) so the sooner you pay it off the less interest you pay.
Overpay the mortgage every single month. Simple really 

grumiofoundation

dimbo61 said:

An old bloke down the pub once said 
" Compound   interest is the eighth wonder of the world. He who understands it,. earns it ; he who doesn't pays it " 
This applies to the interest you pay on a mortgage ( debt of death ) so the sooner you pay it off the less interest you pay.
Overpay the mortgage every single month. Simple really 

But you can also get compound interest in a bank account, you can also get get compounded returns in the stock market.

So even assuming overpaying the mortgage is sensible for you (locking away cash) it may not be the 'best' thing to do.

If I can greater interest than mortgage interest in bank account - why would I overpay the mortgage? 

Rocksolid

tim_london said:

House prices don't rise 5-10% anymore.  Especially with HTB, your new build is likely to dip in value for 2 years before catching up.  In 5 years the value may go up but not by much.

In this case, the 1.65% at year 5 and even the next few years could be much more attractable than bank rate.  We can't predict the future but don't discount keeping the HTB interest is a bad thing.

The only way to prepare is to overpay (if you can) into the mortgage now and make sure your LTV is at 55% by year 5 so that if you remortgage and decide to pay back HTB you are effectively looking at a '75% LTV product'.  If you make a risk in investment and the market tanks like in March or you get furloughed there is no guarantee you can get a remortgage at high LTV.

Don't forget remortgaging is not free, solicitor fees and surveying cost money as well as time.

Should I pay a survey to remortgage?????? It's gonna be every time 1.5k minimum...

If I don't remortgage what happens? The current bank will adjust the interest level? Will I be notified in advance? I suppose yes

Rocksolid

Compound interests... Yes guys, but what about the credit score and mortgage fixed period?

I don't think you can overpay every month btw... You can put down a lump sum to the bank if I'm not wrong, few times a year, certain banks have also limits for it.

The credit score is gonna drop because you don't honor the mortgage agreement, at least this is in my knowledge.

The mortgage fixed period is gonna put a barrier on this... Then you remortgage, and again the same situation, when precisely are you planning to put down this money to lower the LTV?

getmore4less

Rocksolid said:

Compound interests... Yes guys, but what about the credit score and mortgage fixed period?

I don't think you can overpay every month btw... You can put down a lump sum to the bank if I'm not wrong, few times a year, certain banks have also limits for it.

The credit score is gonna drop because you don't honor the mortgage agreement, at least this is in my knowledge.

The mortgage fixed period is gonna put a barrier on this... Then you remortgage, and again the same situation, when precisely are you planning to put down this money to lower the LTV?

Wong on all points.

As long as you pay( at least your contractual) you are fine on any credit related status(score is meaningless)

Most lenders allow more than just a few overpayments a year, more than once a month if you want.
There may be a limit but that is only during the fixed period you can put any excess to one side and pay it down at end of fix(no limit).

Fixed periods, most lenders have retention deals so you can get a better rate then the contractual follow on rate or a remortgage. 

For a HTB 5% deposit 20% HTB loan over 25y  @ 2%   

At 5 years the mortgage debt that was 75% of purchase will be down to 63% that will give some options 

Rocksolid

So you mean I can just top up the bank more than usual? I will need to ask anyway the bank, because normally it's through direct deposit.

Options for what?

Thrugelmir

With HTB unlikely that you'll remortgage to a different lender. More likely to select an option from your existing lender for a new product. 

Rocksolid

Thrugelmir said:

With HTB unlikely that you'll remortgage to a different lender. More likely to select an option from your existing lender for a new product. 

Do I need to pay anyway the fee for that?