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Author Topic: Mortgage help - Help to Buy equity loans  (Read 925 times)
Panda Paws
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« on: Monday, March 26, 2018, 15:23:03 »

The wife and I are currently looking at our first house purchase and are eligible for Help to Buy equity loans.

Anyone got any experience of these, specifically, at the end of the 5 years, when they start adding interest?

If we could afford to, would we better paying off the equity loan during the 5 year period or over-paying on our mortgage during the 5 year period?

Or would we be better off just taking a mortgage for 95% even if it means bigger monthly repayments and a slightly higher rate?

In my head, the best option would be to put any savings and/or lump sums (i.e. inheritance) into a mix of investments and taking everything out just before the 5-year mark to clear the 20% equity loan, but if the house price increases over that period so does the amount we have to repay, so safer bet is to pay off as and when we can?
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Sippo
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« Reply #1 on: Monday, March 26, 2018, 15:26:05 »

Samdy is your man for this.
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Samdy Gray
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« Reply #2 on: Monday, March 26, 2018, 19:22:01 »

They're designed with the idea that you'll pay them off, or your house will increase in value so that you can re-mortgage to pay it off, within the 5 years. After that it starts to get quite expensive.

Personally I think it's a disaster waiting to happen, especially if property prices stagnate (and you're in London aren't you PP?).

I'm not too involved with mortgages these days, but can happily put you in touch with my firm's mortgage adviser.
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china red


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« Reply #3 on: Monday, March 26, 2018, 19:25:27 »

In the process of taking out a help to buy loan.  From year 6 the interest increases by 1% a year, we’ll be remortgaging or paying off after the five years for sure.  Agree with Sandy, a ticking time bomb
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Panda Paws
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« Reply #4 on: Tuesday, March 27, 2018, 10:54:58 »

In the process of taking out a help to buy loan.  From year 6 the interest increases by 1% a year, we’ll be remortgaging or paying off after the five years for sure.  Agree with Sandy, a ticking time bomb

My concern is that to remortgage, you're very limited to lenders.

I'm working on the basis that we can pay off, cash, majority of the 20% in the 5 years, which makes sense. If I manage to do that, presumably I can remortgage with anyone.

They're designed with the idea that you'll pay them off, or your house will increase in value so that you can re-mortgage to pay it off, within the 5 years. After that it starts to get quite expensive.

Personally I think it's a disaster waiting to happen, especially if property prices stagnate (and you're in London aren't you PP?).



We'd looking Essex/London border rather than London per se - and also look at a very long-term purchase.

I guess the biggest question is if I can afford, say, £500 extra a month on top of the mortgage payments, would I be better overpaying on the mortgage, saving the £500 a month to pay off the equity loan or just getting a 95% mortgage that costs £500 per month more?
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STFC_Manc


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« Reply #5 on: Tuesday, March 27, 2018, 22:03:43 »


I guess the biggest question is if I can afford, say, £500 extra a month on top of the mortgage payments, would I be better overpaying on the mortgage, saving the £500 a month to pay off the equity loan or just getting a 95% mortgage that costs £500 per month more?

Aren't the first two more or less the same thing? By overpaying you are increasing your equity and by saving then paying off the equity loan you are just increasing your equity.  The question is can you achieve a better return than Mortgage interest rate.

The third one I reckon is the worst option, as you are paying more because you are classed as higher risk.

I could be talking rubbish mind.
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Panda Paws
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« Reply #6 on: Wednesday, March 28, 2018, 09:52:03 »

Aren't the first two more or less the same thing? By overpaying you are increasing your equity and by saving then paying off the equity loan you are just increasing your equity.  The question is can you achieve a better return than Mortgage interest rate.

The third one I reckon is the worst option, as you are paying more because you are classed as higher risk.

I could be talking rubbish mind.

You're right in your second point.

I think there is a difference in the first two options though. Basically the general theme is only do one of these things if you've got a realistic chance of paying off all, or at least most) of the equity loan in the first 5 years.
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