How to invest to prevent the H2B hammer after 5 years

tim_london

Most banks will give you instructions how to transfer extra money to them.  Basically a reference number you’d put on the money transfer.

The issue with HTB is, on a 25year mortgage (most common) you start of with 75% LTV which is great but after 5 years (without overpayment) you are only at 63% LTV which now gives you a dilemma.  

1 - do I suck up the HTB hammer (or not pay back) and ask the bank to give me a better or same deal.  Note that better deal starts at 60% LTV so you’re short.  And not all banks want to deal with HTB so there are less choice.  Hence why you’ll likely to stick with same bank.

2 - do I ask the bank to ‘lend me back the money’ (this is called advance btw).  So that I can pay back the 20% HTB (assuming house value is the same).  But then it means you need to ask for a 83% LTV loan from bank, which is going to be a worse rate if they accept you at all.

This is why overpayment is important.  You want to be at the sweet spot of 55% if you can so that you can pay back HTB and still be at 75% LTV and unlock the best products.

Overpayment beats putting the money aside because of compound interest risk free.

getmore4less

Back in Jan(when you could get 95% mortgage) I did the calculations for a 95% against 75% HTB.

To be worse off with HTB the house needed to go up 41% in value over 5 years.

https://forums.moneysavingexpert.com/discussion/comment/76694270#Comment_76694270

Rocksolid

In few words, you are suggesting to overpay every month if possible, rather than investing, in the end, I'm investing against my mortgage to lower down interests every month, is it right?

But here the point is to calculate what is better to repay, mortgage or H2B, or from another point of view, seen that I can repay the H2B loan ONLY after 5 years and of at least 50% of the value in one shoot, should I invest these money that I spare for the H2B in the meantime?

I mean, I know I should, but I should just invest in a 5 years plan, what plan is good for this?

Or should I put all in the mortgage repayment and start to pay interests on H2B till I haven't the 50%?

(I'm not going to take a mortgage interest only)

Thrugelmir

You can repay the HTB loan early. As it's interest free for 5 years there's little point. Hence why spare money is better directed at the mortgage balance. 

tim_london

Rocksolid said:

In few words, you are suggesting to overpay every month if possible, rather than investing, in the end, I'm investing against my mortgage to lower down interests every month, is it right?

Yes

I mean, I know I should, but I should just invest in a 5 years plan, what plan is good for this?

Nothing.  Because any 'no risk' saving account is likely to give you lower interest than your fixed rate mortgage.  The best 5 year fix bond I found was 1.65% AER.  

And if you are thinking about investment (equity/stock and share/mutual fund) - it is too risky.  

1. The issue with HTB/mortgage is you need to pay up at a very specific point in time. 
2. The issue with investment is that it can dip at any time (although it does always recover).

The 2 are incompatible.  Investment is a good thing, just don't use it against mortgages.

getmore4less

Rocksolid said:

In few words, you are suggesting to overpay every month if possible, rather than investing, in the end, I'm investing against my mortgage to lower down interests every month, is it right?

But here the point is to calculate what is better to repay, mortgage or H2B, or from another point of view, seen that I can repay the H2B loan ONLY after 5 years and of at least 50% of the value in one shoot, should I invest these money that I spare for the H2B in the meantime?

I mean, I know I should, but I should just invest in a 5 years plan, what plan is good for this?

Or should I put all in the mortgage repayment and start to pay interests on H2B till I haven't the 50%?

(I'm not going to take a mortgage interest only)

Yet another error in your thinking 

Until you understand the basics of mortgages and H2B you will always struggle to get your head round the options.

getmore4less

tim_london said:

Rocksolid said:

In few words, you are suggesting to overpay every month if possible, rather than investing, in the end, I'm investing against my mortgage to lower down interests every month, is it right?

Yes

I mean, I know I should, but I should just invest in a 5 years plan, what plan is good for this?

Nothing.  Because any 'no risk' saving account is likely to give you lower interest than your fixed rate mortgage.  The best 5 year fix bond I found was 1.65% AER.  

And if you are thinking about investment (equity/stock and share/mutual fund) - it is too risky.  

1. The issue with HTB/mortgage is you need to pay up at a very specific point in time. 
2. The issue with investment is that it can dip at any time (although it does always recover).

The 2 are incompatible.  Investment is a good thing, just don't use it against mortgages.

You can pay it off at any time in 1 or 2 chunks,  there is a relatively low cost after 5 years at 0% when the interest kicks in on the initial amount borrowed.

IN cases where there has been some house price inflation that interest/rent cost could be significantly lower than the mortgage rate 20% of the value in 5y
IN cases where interest rate have gone up then it could be a lot lower than current mortgage rates

if both happen lets say  20% house rise and best rate @ 75% is now  2.5%(against current 2%)  
H2B  1.75% per  £10k  is £14.58pm
buyout 2.5% now on £12k is £25pm

Once you are in a position to do the first 10% buyout it is the calculation of the costs of keeping the H2B against house price changes.


 

getmore4less

Thrugelmir said:

You can repay the HTB loan early. As it's interest free for 5 years there's little point. Hence why spare money is better directed at the mortgage balance. 

It depends on how fast that amount is changing and the costs of borrowing the extra money.
Interest free on the 20% may not be enough to out pace the price rises of that 20%.

Rocksolid

getmore4less said:

Rocksolid said:

In few words, you are suggesting to overpay every month if possible, rather than investing, in the end, I'm investing against my mortgage to lower down interests every month, is it right?

But here the point is to calculate what is better to repay, mortgage or H2B, or from another point of view, seen that I can repay the H2B loan ONLY after 5 years and of at least 50% of the value in one shoot, should I invest these money that I spare for the H2B in the meantime?

I mean, I know I should, but I should just invest in a 5 years plan, what plan is good for this?

Or should I put all in the mortgage repayment and start to pay interests on H2B till I haven't the 50%?

(I'm not going to take a mortgage interest only)

Yet another error in your thinking 

Until you understand the basics of mortgages and H2B you will always struggle to get your head round the options.

If you tell me more about that...

Online I see that I can repay the H2B loan ONLY after 5 years and of at least 50% of the value in one shoot, that's what I read online, this can't be changed, max the way I put the money aside for 5 years can be discussed.

Seashell517

https://www.helptobuy.gov.uk/equity-loan/equity-loans/
You only need to repay the equity loan in full when you:

• pay off your mortgage
• sell your home
• come to the end of your equity loan term.

But you can choose to pay off your equity loan any time, in full or in 10% chunks before the end of the loan period.