Make 10% overpayments, or pay off help to buy?

[Deleted User]

I'm sure this is a question that has been asked before but everyone's financial situation is different so I just wanted your thoughts please.

I bought my house in 2017 for £189500 - 20% of this cost was covered by a help to buy loan (£37,900) with a 5% deposit from myself and the remainder being a £142,125 mortgage from Nationwide, 5 year fixed at 2.69%. The current balance of the mortgage is £130,087. I have 18 months left on the 5 year fixed mortgage.

I am now in a position to overpay this mortgage with my partner to the tune of approx. £1000 a month (which should save £47,000 according to the overpayment calculator) or put this money away for 18 months and pay off 10% of the help to buy, with the remaining 10% being paid off when I remortgage.

I personally think the best option and the most cost effective is to overpay on the mortgage, hopefully bring it down to £110k or less by December 2022 and then remortgage the house for more money to pay off the help to buy at the same time. Our house price is likely to have increased from £189,500 to £220,000 by the point we pay off the help to buy so would be looking at paying between £43,000 and £45,000 - so that would be a mortgage of approx. 155k with a house value of £220k.

Would really appreciate some advice from those that have been in similar positions - I also think when we remortgage that the interest rate will be very favourable and we should start to save even more at this point. Thanks

K_S

@Deleted User Without commenting on your specific scenario or numbers, most of my clients in a similar situation have found it better to overpay on the interest-charging mortgage and leaving the interest-free H2B equity loan to the end of the 5 year remortgage.

getmore4less

Saving and paying off just 10% leaves you with the other 10% and 2 lots of costs

lets start with the numbers looks like 30years full term
3y 6month

amount	rate	payment	owing	interest
£142,125.00	2.69%	£575.71	£130,815.02	£12,869.67

5 years

amount	rate	payment	owing	interest
£142,125.00	2.69%	£575.71	£125,632.66	£18,050.01

from (18m)

amount	rate	payment	owing	interest
£130,815.00	2.69%	£575.71	£125,632.64	£5,180.34

£1kpm overpayment 

amount	rate	payment	owing	interest
£130,815.00	2.69%	£1,575.71	£107,285.45	£4,833.23

On a value of £220k add back 20%  ~£152k  69%LTV  

That's into the <75% where the rates become decent compared to high LTV Also rates where keeping the H2B running is not attractive.

Nationwide break at 75% and 60%

Their 5y switch and borrow more rate is 1.54% no fee which is very competitive(might be a broker only option as main site has shows fees)

things will change so review closer to the time  If still overpaying would probably look at the 2y fix and that target 60% LTV although the savings over the 5y options won't be massive.



(which should save £47,000 according to the overpayment calculator) 
starting now if you let the mortgage run(26y 6m) with same rate and payment

amount	rate	payment	owing	interest
£130,815.00	2.69%	£575.71	-£0.00	£52,259.43

then with the £1k overpayment till paid off 7y 8m

amount	rate	payment	owing	interest
£130,815.00	2.69%	£1,575.71	-£57.39	£14,092.93

that's ~£38k interest saved what calculator told you £47k?

lonibra

You would need a really good reason to pay off the helptpbuy loan before the 5 year mark 

amnblog

You are suggesting that the value of the 20% equity will rise from £38K to £44K over the first five year.

If this is the case, it is costing you about £1,200 more to buy back for every year you delay.
Overpaying by £12,000 a year at 2.69% interest saves £333 per year for each years overpayment.

The value and potential value of the unpurchased equity is by far the bigger factor.

getmore4less

The money does not exist yet, there is 18 month to go on the H2B fix. 
~£1800 rise if averaged over the 5y,  the other years rise is already sunk.

current option with overpayments 
In 18 months looking at a switch and raise at <75% LTV  with a single fee of £1k

Something to look at for  a comparison.
if you can do a capital raise part way through a H2B fix
Raise the money now with Nationwide(probably a no fee)  looking at the best way to structure that to use up the £1kpm extra(will depend on how overpayments can be allocated)  £1k per month looking at around 4 years to pay off with £1kpm
what rate would that be on £42k  probably 80% LTV  current capital raise looks to be 2.49% no fee.

Switch main subaccount in 18m  to a new deal should be <75% total lending by then will still be a  fee product.

Then there is the cost of the carry over of the additional borrowing at the higher rate till paid off to add in 
Additional on 2 no fee then product switch no fee  should have it cleared in <4years if you can overpay your 10% all on a subaccount that looks promising needs a full crunch to see if anything better.