Advice on getting rid of the help to buy equity loan...

edisoneb

Good Morning 

im just looking for some advice on getting rid of the help to buy share on our home, 20%. 

Our 5 year interest free period is now up and we’re paying a small interest fee each month. We have in savings around half of to 20%, maybe more - but going off worst case scenario if the valuation is higher than expected! We’re currently tied into a fixed rate deal with Santander for another 4 years and would pay quite a lot to end it so I was wondering what the best option. We could take out an addition mortgage with Santander... is this the best option or should we hang on and just save/pay interest till our fixed term is over, at that point could we combine the 2, current mortgage and remainder of help to buy? 

If we take out an additional mortgage now over the 19 years (that’s what’s left on our current mortgage) can we combine the 2 once we are out of the fixed rate period? I don’t like the idea of constantly having 2 mortgages that’s all? Any advice is greatly appreciated :-:smile:
 Thank you

rik111

Whats the rush ? Just keep paying the small amount of interest until youve saved enough to clear it or you fixed term ends and you can remortgage and clear it. Why do you think taking out an expensive second mortgage to clear this low interest debt is in any way a good idea?

Swasterix

rik111 said:

Whats the rush ? Just keep paying the small amount of interest until youve saved enough to clear it or you fixed term ends and you can remortgage and clear it. Why do you think taking out an expensive second mortgage to clear this low interest debt is in any way a good idea?

Whilst on the face of it this seems like good advice, there is another part of the equation to consider. 

When paying off the equity loan you do not pay the original amount borrowed, you pay 20% of the value of the property at the time of redemption. If the value of the property rises significantly it may work out cheaper to re-mortgage. 

Quick fag packet calculation....

Lets pretend OP payed £300k for the property; £240k mortgage, £60k equity loan. OP states that they have half of the equity loan saved, so £30k. Op therefore needs an additional mortgage of £30k. Over 25 years at 2% they will pay around £8k in interest. 

Let’s pretend OP decides to leave it, and in the interim the property value rises to £350k. 20% of £350k is £70k, meaning that they will have to repay and additional £10k (not including the additional interest they have already paid). 

Mortgage cost £8k, equity loan cost £10k (plus interest paid) = cheaper to remortgage. 

Obviously this is a very rough, pie in the sky calculation. Just trying to demonstrate to the OP that they need to do some number crunching as although it would seem to be very cheap debt on the face of it, it could potentially be very expensive should property values rise significantly. 

edisoneb

The problem is we would ideally like to do some improvements to the property, potentially adding value so we may end up paying more than originally borrowed. A few of the properties round about which are up for sale seem to be getting reduced in price also so could be beneficial to do it sooner rather than later? 

If we were to hold off for 4 years would we then be able to combine the 2 and have it in 1 mortgage? 

Thanks

RelievedSheff

edisoneb said:

The problem is we would ideally like to do some improvements to the property, potentially adding value so we may end up paying more than originally borrowed. A few of the properties round about which are up for sale seem to be getting reduced in price also so could be beneficial to do it sooner rather than later? 

If we were to hold off for 4 years would we then be able to combine the 2 and have it in 1 mortgage? 

Thanks

If you hold off for the four years then yes you can remortgage it all into one payment at a higher LTV.

edisoneb

RelievedSheff said:

edisoneb said:

The problem is we would ideally like to do some improvements to the property, potentially adding value so we may end up paying more than originally borrowed. A few of the properties round about which are up for sale seem to be getting reduced in price also so could be beneficial to do it sooner rather than later? 

If we were to hold off for 4 years would we then be able to combine the 2 and have it in 1 mortgage? 

Thanks

If you hold off for the four years then yes you can remortgage it all into one payment at a higher LTV.

Thank you, one more thing if we didn’t hold off and bought it out now taking an additional mortgage, after the 4 years can we combine the 2 or will they always be seperate?

Racky_Roo

To do that, you need to get a product which will end at the same time as your fixed rate or earlier on the new mortgage, then when the fixed rate ends you remortgage either with the same lender or a new one. Don't get fixated on needing only one mortgage, I had 2 running for years and it didn't cause me an issue.

edisoneb

Racky_Roo said:

To do that, you need to get a product which will end at the same time as your fixed rate or earlier on the new mortgage, then when the fixed rate ends you remortgage either with the same lender or a new one. Don't get fixated on needing only one mortgage, I had 2 running for years and it didn't cause me an issue.

Thank you for that, I can currently get one through the same lender at quite a good rate and they would end within a month of each other so ideally would like to combine them once the fixed rate period are over but your right maybe I’m worrying about that when I don’t need to.
many thanks for the help

getmore4less

You will have to check with the lender if the current H2B product rate can stay as is if you go to higher LTV.

LittleDrum

We are having a second mortgage on a tracker rate until we can combine in May. We are in the process of moving now.  You don't always have to tie into fixed rates.