Strategies to pay off help2buy loan

hoggle2802

H2b interest only payments are currently costing us £100 per month. The capital is around 76k and can't afford to pay it off. Any views on best way to tackle this please? Husband and wife, both 39. One higher rate tax payer one basic rate.

Rules mean you can't chip away at h2b capital. You pay it all off as a lump sum, or half off as a lump sum. No alternatives.

Could increase pension contributions, but unlikely to sufficiently increase our lump sum on retirement. So it doesn't pay off the h2b lump sum even if it gives one of us favourable tax relief.

Lifetime isa. One each. Could afford £100 per month each. Gets us a fair way there, plus government contributions are nice. Can't take the money until we turn 60.

Normal isa. One each. Any isa would be stocks and shares imo.

Remortgage the house to pay off the h2b lump sum. Would remove £100 monthly interest, which is perennial elsewise. Does add £400pm to outgoings, well £300 given we save the £100pm.

Any views please?

eskbanker

How many years are left on the term of the loan?  It would seem that the interest rate is pretty low, so it should be straightforward to achieve a significantly higher return on your money in investment, but having a target date to work towards will inform the best plan....

hoggle2802

eskbanker said:

How many years are left on the term of the loan?  It would seem that the interest rate is pretty low, so it should be straightforward to achieve a significantly higher return on your money in investment, but having a target date to work towards will inform the best plan....

Loan doesn't have a term per se. Has to be paid off when the house is transferred, we're not moving so will be when we retire or die.

Other alternative is just pay the monthly interest, enjoy better cash flow whilst the kids are young and  pay off the 20% (20% of an ever increasing sum) when my parents die and the inheritance just about covers the lump sum.

And parents have no plans to die for decades 😀

hoggle2802

Its effectively how to tackle the capital for an interest only mortgage on 20% of the house. Ty

kaMelo

After the first year of interest being charged I thought the help to buy loan interest rate increased by CPI plus a bit more each and every year.

From the second year, interest charges become quite expensive.

hoggle2802

kaMelo said:

After the first year of interest being charged I thought the help to buy loan interest rate increased by CPI plus a bit more each and every year.

From the second year, interest charges become quite expensive.

Its not painfully so, so far as cashlow is concerned. Its really down to the choice of remortgaging or a LISA. I think.

eskbanker

hoggle2802 said:

eskbanker said:

How many years are left on the term of the loan?  It would seem that the interest rate is pretty low, so it should be straightforward to achieve a significantly higher return on your money in investment, but having a target date to work towards will inform the best plan....

Loan doesn't have a term per se. Has to be paid off when the house is transferred, we're not moving so will be when we retire or die.

Other alternative is just pay the monthly interest, enjoy better cash flow whilst the kids are young and  pay off the 20% (20% of an ever increasing sum) when my parents die and the inheritance just about covers the lump sum.

And parents have no plans to die for decades 😀

From a bit of quick reading at the likes of https://www.gov.uk/help-to-buy-equity-loan, I thought that these loans were typically over 25 years (albeit repayable earlier under various circumstances) but am no expert!  I inferred from your reference to not being able to access LISA money until 60 that this was potentially an issue?  Obviously if you are going to take the LISA route, you should get accounts opened sooner rather than later if you're both 39.

It seems that there are quite a few variables that you'd need to model to determine when/how to pay it off, including future inflation (for interest escalation), house price trends (for value to be paid off), and assumed growth rates for savings or investments, together with your personal circumstances, in terms of income and monthly surplus, and your existing savings, plus remortgage rates, so I'm not sure that there's any simple answer, but a spreadsheet will probably be necessary.

hoggle2802

eskbanker said:

hoggle2802 said:

eskbanker said:

How many years are left on the term of the loan?  It would seem that the interest rate is pretty low, so it should be straightforward to achieve a significantly higher return on your money in investment, but having a target date to work towards will inform the best plan....

Loan doesn't have a term per se. Has to be paid off when the house is transferred, we're not moving so will be when we retire or die.

Other alternative is just pay the monthly interest, enjoy better cash flow whilst the kids are young and  pay off the 20% (20% of an ever increasing sum) when my parents die and the inheritance just about covers the lump sum.

And parents have no plans to die for decades 😀

From a bit of quick reading at the likes of https://www.gov.uk/help-to-buy-equity-loan, I thought that these loans were typically over 25 years (albeit repayable earlier under various circumstances) but am no expert!  I inferred from your reference to not being able to access LISA money until 60 that this was potentially an issue?  Obviously if you are going to take the LISA route, you should get accounts opened sooner rather than later if you're both 39.

It seems that there are quite a few variables that you'd need to model to determine when/how to pay it off, including future inflation (for interest escalation), house price trends (for value to be paid off), and assumed growth rates for savings or investments, together with your personal circumstances, in terms of income and monthly surplus, and your existing savings, plus remortgage rates, so I'm not sure that there's any simple answer, but a spreadsheet will probably be necessary.

Thank you.al Am currently number crunching and hopefully will figure it out. Hopefully🤪

Futuristic

kaMelo said:

After the first year of interest being charged I thought the help to buy loan interest rate increased by CPI plus a bit more each and every year.

From the second year, interest charges become quite expensive.

It doesn't really work like that, I'm on 7th year and near peak of inflation (April 2023) my interest rate is in the low 2% for the year. It has different calculation than just adding on CPI/RPI. 

You either think your home value keeps going up and consider paying it off or wait with the interest rate so low vs mortgage rates.