Re-Mortgaging - help me crunch the numbers please

greenbluegreen

I'm really sorry that some of my questions my sound silly, but there we are  

Some info first:
Outstanding Mortgage: £120,971.94
Fixed Interest term: 3.5 Years (out of 5)
Interest: 1.84%
Monthly Payments: £390.87
Years: 35.5 (37 in total)
Help To buy equity loan: £39000
Overpayments allowed: £12000 p/a

I have no other debt and have saved for rainy day. I'm willing to make overpayments of £250 monthly and 2-3k as a lump sum once a year

1) I really like to be able to get rid of the equity loan before or on year 5 (this is when I'm due for remortgage as well). Can I pay this directly on instalments or does it need to be in full at the end? (I appreciate this depends if my house is worth more than I bought for)
2) Is it better to overpay my mortgage instead and then see if I re-mortgage with the bank again, taking the equity to cover for the loan?
3) Is it better to save the £250 monthly into a savings account and then invest as a lump sum, combining with the 2-3k I'm thinking of depositing. Which way am I paying less interest, or does it not matter? (this is the silly question I guess )

All in all I have 3.5 years to get myself into a good position when the time comes for Remortgage & interest starts adding on the H2B part and I'm looking at the best way to achieve this.

Many thanks for your answers! 

Green

dimbo61

You can't pay off the Equity loan in installments.
You have at the moment an Interest Free loan for another 3.5 years.
Your paying Interest on the mortgage so for me overpaying that every month makes sense.
Hopefully your home will be worth more in 3.5 years time and that plus the normal mortgage payments and Overpayments plus your original deposit means you can remortgage to pay off the Equity loan in one go.

getmore4less

IF you have the 20% H2B you can pay it in 2 instalments but that comes with 2 lots of fees so often not worth it..

the key to H2B is getting it paid off ASAP as soon as the costs to borrow out way the rate of price increase.

This is driven by max borrowing and LTV which determines the rates.

the 20% interest free is only part of the saving getting the 75% at a lower rate can contribute more to the savings pot.

Looking like you bought around June/July 2020

Anyway some numbers(with guesses as you missed of important information).

assume this H2B 20% 5% dep 75% mortgage.

That would make it 

£195k =  £39,000,  £9,750,  £146,250
with a ~£391 payment @ 1.84% that's a 46y 5 month full term unlikely

Looking at your other thread this is not a 20,5,75 HTB as there was up to £50k for deposit.

Not clear why you used H2B

using £390.87 and 1.84% we get a range of mortgage possibilities.
for 37years(missed that above) and with it being ~£121k after ~18months

That makes it starting at £125,800 and there have been some overpayments.

If purchase was £195k  that makes it £39k(20%) £125,800(64.5%)  £30,200(15.5%)

What was the 85% mortgage LTV rate or were you limited by income?

Without price movement your LTV is now £121k/£195k  = 62%

if we project to Y2,3,4,5  with say a  payment of £391+£250+(£2k-£3k/12=£167-£250) £209 = £850
2 £117k 60%
3 £109k 56%
4 £101k 52%
5 £092k 47%

this is before prices go up

Adding back the 20% yo can be looking at 80% extra borrowing to buy out the H2B in 6 months

75% extra borrowing will take at least another year after that

from that data and with an estimate of price now and potential price rises you can work out when would be a good time to buy out the H2B.

Don't get too enthusiastic about 20% interest free it only saving amounts against borrowing the money  small house prices wipe that out.

5y 85% rates are under 2.5% so any house rise above that wipes out any saving 80% are under 2%.

greenbluegreen

getmore4less said:

IF you have the 20% H2B you can pay it in 2 instalments but that comes with 2 lots of fees so often not worth it..

the key to H2B is getting it paid off ASAP as soon as the costs to borrow out way the rate of price increase.

This is driven by max borrowing and LTV which determines the rates.

the 20% interest free is only part of the saving getting the 75% at a lower rate can contribute more to the savings pot.

Looking like you bought around June/July 2020

Anyway some numbers(with guesses as you missed of important information).

assume this H2B 20% 5% dep 75% mortgage.

That would make it 

£195k =  £39,000,  £9,750,  £146,250
with a ~£391 payment @ 1.84% that's a 46y 5 month full term unlikely

Looking at your other thread this is not a 20,5,75 HTB as there was up to £50k for deposit.

Not clear why you used H2B

using £390.87 and 1.84% we get a range of mortgage possibilities.
for 37years(missed that above) and with it being ~£121k after ~18months

That makes it starting at £125,800 and there have been some overpayments.

If purchase was £195k  that makes it £39k(20%) £125,800(64.5%)  £30,200(15.5%)

What was the 85% mortgage LTV rate or were you limited by income?

Without price movement your LTV is now £121k/£195k  = 62%

if we project to Y2,3,4,5  with say a  payment of £391+£250+(£2k-£3k/12=£167-£250) £209 = £850
2 £117k 60%
3 £109k 56%
4 £101k 52%
5 £092k 47%

this is before prices go up

Adding back the 20% yo can be looking at 80% extra borrowing to buy out the H2B in 6 months

75% extra borrowing will take at least another year after that

from that data and with an estimate of price now and potential price rises you can work out when would be a good time to buy out the H2B.

Don't get too enthusiastic about 20% interest free it only saving amounts against borrowing the money  small house prices wipe that out.

5y 85% rates are under 2.5% so any house rise above that wipes out any saving 80% are under 2%.

Amazing breakdown, thank you! I’ll have to reread it few times to comprehend the information, bear with..

in the meantime, just want to add that the deposit was 31,000 and I’ve asked the bank fee of £1000 to be included in the mortgage, which I ‘overpaid’ within the first month. Hope this helps, but let me know what information might still be missing.

It was the income that was the issue at the time, therefore the need of H2B. 

many thanks!

getmore4less

Estimates of current value useful.

Would the income still be the limiting factor.

Deposit £31k and £1k fees added is the same as £30k fees paid

greenbluegreen

getmore4less said:

Estimates of current value useful.

Would the income still be the limiting factor.

Deposit £31k and £1k fees added is the same as £30k fees paid

I'm on a better income (by 10k p/a). Would this help? 

getmore4less

£10k should add a decent amount might even cover the HTB  if the LTV stacks up.

Thrugelmir

What rate of interest are earning on your savings, does it better 1.84% ? If it doesn't overpay the mortgage whenever you afford to do so. Remember to maintain a decent emergency buffer though. Little point in having to use a credit card even temporarily. 

greenbluegreen

Thrugelmir said:

What rate of interest are earning on your savings, does it better 1.84% ? If it doesn't overpay the mortgage whenever you afford to do so. Remember to maintain a decent emergency buffer though. Little point in having to use a credit card even temporarily. 

Thank you!

I've got 3 months expenses buffer and only use Amex for 1.25% cashback. Afaik there isn't a savings account offering better than 1.84 currently (might be wrong).

greenbluegreen

getmore4less said:

£10k should add a decent amount might even cover the HTB  if the LTV stacks up.

I also did a home track valuation which estimated the current price today is between 220 -  268k. Is this actually a bad thing? 

getmore4less

The wage increase and the rise in value will get you closer sooner.

issue is  the H2B goes up as well so may hit 

Without price movement your LTV is now £121k/£195k  = 62%

At £220k that's 55% LTV but needs £44k to buy out the H2B (+costs)
Total new lending £165k 75% ltv

£39k more than when you started(£126k but the £10k rise should cover that affordability(4x)

At £268k 45.2%ltv  ~£54 H2B
New lending at ~65% £175k 
£49 ~5x

I think you are in range to start thinking/costing buying out the H2B.