Should I overpay mortgage or save to pay off help to buy equity loan

leezy93

Hi, I have seen a couple similar posts but none of them seem to get to the heart of my issue. 

I have both a mortgage and a 40% H2B equity loan. I am currently paying off my mortgage at the normal rate and saving up over the 5 years to pay off a 1/4 of the loan and then will attempt to remortgage the rest and bring the two together (no guarantee I will be able to do that though as it is quite high figures and I will need to be earning substantiality more). 

I am starting to wonder if it is best to overpay my mortgage with that extra money each month to lower that balance and try remortgage the whole H2B in 5 years time. That way I will pay less interest? 

Is there a better one to pay? Should I speak to a mortgage advisor?

kingstreet

Take the route with the highest (net) rate.

If your mortgage rate is higher, make mortgage overpayments or vice-versa.

coypondboy

Out of interest what happens if you are in negative equity when you come to add help to buy and main mortgage together as many will be as new house always drop 15-20% and prices in uk will fall another 10-15% this year.

TBagpuss

It will depend on the interest rate on your mortgage and the interest rate you can get on your savings..

If the mortgage interest rate is higher then you save more by overpaying, if you can get higher interest on savings then it make more sense to save.

the other consideration is that if you overpay you are less likely to be able to access those funds in the mean time. That could be an advantage if you might be temepted to dip into savings, but does mean that you don't have access in an emergency.

Assuming the mortgage interest rate is higher than the savings rate you get I'd suggest switching to overpayment but keeping a small pot of savings for emergencies. 

And of course, keep an eye on the figures - assuming you are on a fixed rate mortgage, there's normally a cap onhow much you can overpaywithout triggering ERC - it's normally 10% but check. 

JustDavid

Personally, I'd say the HTB equity loan. As this represents a % of your property, the longer you leave it in place, the more it will cost you when you come to clear it. In the simplest terms, if you had a £100k home and 40% of that was an equity loan you'd need to pay them £40k. However, every £10k in value your home goes up, you'll owe them an additional £4k when you come to clearing it. Whereas reducing that equity loan % means you benefit more from your home going up in value. 
You wont just be able to make overpayments to the HTB loan though in the same way you would a mortgage. You would need to get an agreed value of your home by the HTB lender and confirm what % of the equity holding you wanted to clear.