help to buy equity loan-overpay mortgage or high intrest saving account to pay off loan

younghousebuyer · 30 November 2019 at 6:13PM

My daughter has just bought a house using the help to buy scheme.
She can afford to over pay mortgage each month which should offset the loan after 5 years. Is this a good way to address the loan, or would saving in a high intrest account be better. The loan is 50k. Her mortgage is £1100 a month and she can overpay by £200 - £300 each month
She has no debts other than student loan,
Thank you for any advice

nik_k · 5 December 2019 at 12:55PM

The general advice is to overpay the mortgage, unless you can find a savings account paying a higher interest rate than the mortgage rate.

As for the equity loan, this can only be repaid either in one 100% lump, or in two 50% lumps. It's not possible to repay the loan in dribs and drabs.

sal_III · 5 December 2019 at 2:44PM

I don't know what you mean by:

She can afford to over pay mortgage each month which should offset the loan after 5 years.

There is no offsetting the loan, or do you mean that the interests that will be due on the EL after the 5th year?
What is her plan for repaying the loan? Keep it until she sells and repay then or repay early, with savings or remortgage? If she plans to stay in the property for 5+ years I strongly recommend redeeming the loan by year 5-6 when the interests are due and the value of the property is likely to start going up, after the initial dip from the "new build premium". Property value increase is likely to cost her much more than the interests on either the loan or the mortgage.

Personally I'm saving in ~1.5% accounts, with mortgage at 1.59% I'm not losing much, by not overpaying the mortgage. On the other hand I would be in a position to repay some of EL on the cheap with the current market trend in London.

help to buy equity loan-overpay mortgage or high intrest saving account to pay off loan

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