H2B - Am I missing something?

JasperKnight · 16 May 2019 at 10:34PM

Hello,

Just a quick question really as I'm not sure if I'm missing anything.

I have a mortgage and a H2B equity loan. Currently 2 years in, so another 3 years before the interest starts on the equity loan which is fine.

My understanding is that at the end of the 5 year period is that I have 4 options:

1. Pay the loan back at the prevailing 20% rate
2. Pay the interest to the Government
3. Re-mortgage the equity loan into a standard mortgage, presumably with the main mortgage
4. Sell the house and pay the equity loan back

Assume option 1 and 4 are off the table.

I have 2 options left, pay the interest or re-mortgage.

My question is, if the interest in year 6 and 7 is 1.75% and 1.86% respectively (appreciate it's based on RPI at the time so not necessarily 100% accurate) why would anyone re-mortgage? These interest rates at lower than what most banks are offering (right now). To me it makes complete sense to wait until the interest rate on the H2B equity loan is higher than what you could get from a bank (at least year 8 under current circumstances), before considering re-mortgaging.

I know people who are talking about re-mortgaging as soon as their 5 year period ends and I just do not understand why if the interest rate to the Government is less than what a bank will offer them - is my understanding wrong?

TIA.

Edit: also putting aside the potential benefit of the house value soaring in Y6 & Y7 and not owing the Government the additional 20% on the increased value.

aries_163 · 16 May 2019 at 11:02PM

As I understand it, the is only a small pool of lenders who offer remortgage options with the HTB equity loan still in place. So although the interest rate on the initial fix could be at a good rate, the owner could be stuck on a higher SVR after the initial fix ends, resulting in higher monthly mortgage payments. It might be worth consolidating the loan into the mortgage if the overall monthly payment decreases vs the SVR payment?
I’m no expert however, and the amount of lenders offering HTB remortgage options may have increased since I last looked into it. But this could be one reason people would consider it.

amnblog · 16 May 2019 at 11:21PM

You need to think about where the value of the property is going.

Since you buy the equity loan out at the prevailing value there is little point in buying out the equity share when values are falling. If values are rising your cost of buy out is rising making early buy out more valuable.

Vampgirl · 17 May 2019 at 9:17AM

if the interest in year 6 and 7 is 1.75% and 1.86% respectively (appreciate it's based on RPI at the time so not necessarily 100% accurate) why would anyone re-mortgage? These interest rates at lower than what most banks are offering (right now)

You need to think about where the value of the property is going.

This!

We are facing this exact decision right now. Yes it would be cheaper from a monthly repayment point of view to just pay the interest on the equity loan, but we live in an area of strong house prices which are more likely to rise than fall so it makes sense for us to pay it off asap. Our house has already gone up around 20% in the past 4.5 years - which means we owe the government 16k more than we initially borrowed.

H2B - Am I missing something?

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free