Caporegime
Work out how long it will take before your equity loan interest matches your actual mortgage, factor that in to how long you plan to stay in the property, and thus work out which is the more economical route.
Bank of England base rate low until 2015
- Thread starter elrasho
- Start date
Are you sure about that? I was on a Homebuy scheme and I am sure that you had to pay back the amount you borrowed even if it sold for less
What makes it worse is that we sold for more and had to give them 20% of the sale price rather than just the loan amount back
Associate
I think the equity loan will take a while to match the mortgage payments since it's currently like £80 Homebuy fee and £700 mortgage payments. I was working off of calculating money saved on payments on my mortgage after paying some off (so like interest on 100k rather than 150K), versus the interest on the government loan (I need to double check this, I think it goes up 0.5% every year).
There might be something I'm not thinking of though, since I always see people advising people to pay off their mortgage ASAP to save on interest. Also, if I want to sell my flat or rent it out I have to pay the government back.
I am pretty sure yeah, I checked it again last year (paperwork is filed away). It's an equity loan, so it says I have to get some approved surveyor to come and value the flat when I want to buy them out, and it will be 20% of the value at the time. I think this is the government's incentive to offer the scheme, since when it was first offered they thought property prices could only go up, so they could make some money off of it.
You've made me nervous now, I need to check that again!
Caporegime
It's deffo based on the current market value, regardless of if higher or lower.
Associate
Cool. I am definitely trying to be very careful, since I am effectively going to spend our entire savings on either the mortgage or the government loan. I have a warchest separate from savings since I'm a contractor. I feel like I should do something with the savings though. Although, they are in a 3% savings account and ISA is also about that, so I guess I am winning vs the 2.5% mortage (barely).
Associate
Well look at it this way, if you pay off your mortgage, thats a guaranteed saving on future interest on that mortgage, where as paying off the government is only you hoping that the property will be worth more when you resell.
I think its a nobrainer, but I'm an Internet guy who doesn't know your specific figures.
P.S. Gov owns just shy of 40% of mine, and I phone the bank to overpay each month.
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Caporegime
Depends if the overall value of your house is rising, which would make owning more equity in it better than your ISA.
Associate
That is my gut feeling too, I want to get out from under the mortgage as quickly as possible. I did some sums on this a while ago, but I will have to do them again and come to a decision. Hope I choose the right one, as it will take a long time to save this up again!
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The problem is that house prices in some area's are 7-8-9 even 10 times the average salary. The national average is 24,000, now if that were the case here in Devon then houses would be more affordable as a majority are around the 110-150k mark, the thing is though the average salary here in Torquay is below 15000 which makes houses for a vast majority of the residents impossible to get.
It isn't helped by the fact prices have been pushed up by 2nd home owners and people moving here for retirement purposes, and of course the local economy is almost entirely reliant on season work.