£10,000 loan or add to mortgage to be mortgage free?

Toodlepip · 30 May 2006 at 8:38PM

Hi

I have been offered the opportunity to purchase a relatives house at 1/3 of its current value but am £10,000 short. The deal is the relative lives in the house rent free for 6 years then moves out (in 6 yrs they will be moving away after an investment matures, there is no question of them changing their minds) then the house is sold and profit clears my mortgage so am mortgage free!!! BUT I need £10,000.
So, do I get a loan? (Looking at 5.6% apr over 6 years) or top up my mortgage? ......I assume this would be cheaper we have a nationwide mortgage but are on a 5 year 4.89% fixed rate with 4 years to go. Would adding £10000 to mortgage mean a penalty or losing the fixed rate?
Which is the best route?

:cool:

MarkyMarkD · 30 May 2006 at 10:34PM

Assuming that you have sufficient equity in your current property, and sufficient income to support £10k more of mortgage, Nationwide will be happy to lend it you and it wouldn't affect your existing product. You would probably have to pay their standard variable rate on the extra £10k, which is not far off the 5.6% APR; you could also spread the £10k over the term of the main mortgage which means lower payments (but more interest in total).

Toodlepip · 30 May 2006 at 11:51PM

Thanks Marky,
am thinking that if its standard variable rate (5.89%) then there is the risk of it going up so might be better with the loan at 5.6% which has no penalty for early redemption or overpayments (Northern rock) so we know exactly where we stand. Will check what nationwide will offer first before commiting though just in case they offer us a once in a lifetime deal! I live in hope!!!

:rotfl:

SKIPPY · 3 June 2006 at 10:36AM

Are there not tax implications of selling a house well below it's market value for your relative? Is it not a different way of giving you cash?

domestic_goddess · 3 June 2006 at 3:03PM

I dont think there are tax implications. I bought a house from my parents about ten years ago at less than half of its market value. I then sold it on for full market value after a few years.

The house was advertised at estate agents though rather than a private sale as the only reason i bought it is they were considering a ridiculously low offer from someone. Not sure if that makes a difference at all....

wannabedebtfreebeth · 3 June 2006 at 10:34PM

Surely you have to pay capital gains tax on anything other than your main dwelling when you sell??

MarkyMarkD · 4 June 2006 at 12:49AM

Yes, you do. So buying from relatives at far less than market value may not be advisable from a CGT position for the family as a whole; it may be better to pay market value and then get an unrelated gift of the discount (say) which is CGT exempt (and IHT exempt if the donor survives 7 years).

Toodlepip · 4 June 2006 at 7:24PM

Thanks Everyone.
Yes you're right about Capitla Gains Tax. We are now looking at paying full value of house to avoid this and maybe the cash gift idea. Thanks for the replies.

£10,000 loan or add to mortgage to be mortgage free?

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