Is Anyone Knowledgable On Finance/Mortgages, Any Advice?

[Raidergal2022]

I took a mortgage out on a new build 2 years ago. It offered a first time buys deal ie 30% equity loan.

So I took out a mortgage for 70% of the house value. The other 30% was paid for by the council - it is interest free forever but at 25 years 30 percent of the homes value (most recent value) has to either be paid back or you have to sell the house to pay it back.

The loan can be paid off prior to the 25 year mark but there’s no way I can afford that.

As house prices are increasing I looked into getting it paid off through remortgaging (my monthly mortgage payment would be increased) but the financial advisor thought it was daft and said he can’t understand why I want to - as the loan is interest free. He said that I’m better overpaying the mortgage I have

I just don’t like the loan hanging over me if you know what I mean. The more the house is worth the more I will owe - ie I will
Owe 30% of the houses value

I don’t want to be forced to sell the house when I’m older.

I’m not great with financial predicaments was wondering what would you do?

Am I really better off overpaying the mortgage and forgetting about the loan until house prices reduce (if they ever do)?

[youngmafbog]

You dont say how old you are so its difficult to answer. My guess is the financial advisor is correct, after all he must be turning down commission!

If you are youngish then pay back as much as possible on the loan that is costing you interest. Overpaying is the best way to clear a mortgage. Just reassess every 5 years perhaps. It's likely, but not at all guaranteed, that interest rates will rise so if you go fof a variable rate mortgage it really wouldn't be too advisable to get shot of an interest free portion.

Unfortunately I dont think there is a wrong or right answer and its up to you and how you see your circumstances I'm afraid.

[carrot99]

Does the 30% loan stay the same current amount for the next 23 years and only becomes 30% of the house's value after 25 years? If it does I'd ignore it for 20 years and then get a personal loan to pay it off in the 24th year.

When I took out my mortgage in 1976 the monthly £74 was most of our salaries even though both my partner and I worked full time. 25 years later £74 was nothing. So even though it seems an enormous debt now, in 20 odd years the loan will be manageable.

[Raidergal2022]

Carrot99 no the loan is always £30 percent of whatever value the house is at the time, so the amount I owe increases as the house value increases

[Gizmonster]

Roughly how old are you??
If you can't afford to take a loan out to pay it off and if you're young enough and can afford to overpay, I'd recommend overpaying as much as you can in order to pay the mortgage off as quickly as possible. When the mortgage is paid off, depending on your age, you could remortgage for 30% of the value of the house and then pay the council loan off.

[Raidergal2022]

Thanks gizmonster

Roughy speaking I’m 40 ha

[Ellipsis]

Do you expect to be in the same house in 23 years' time?

Most people would sell the house at some point in that 23 years, and at that point you'll be in a position to pay off the 30%.

If you're in a position to be able to overpay your mortgage then do so. It's a great idea, assuming you don't have other loans that are even more expensive than the mortgage. Pay off your most expensive loans first, no matter how small they are.

[carrot99]

Sorry raidergal, that's a shame. Best way then is to overpay on the mortgage to reduce that asap so you can start on the 30%.

The good thing is that even though you really have to pay 100% at least you're only paying interest on 70%. So you do have your own home and hopefully over the 23 years your income will increase and you'll get it all paid off.

[Raidergal2022]

Ellipsis that’s one of my queries though in the long run will I save more by ignoring the equity loan for a few years and just making overpayments on the mortgage..

Or by paying the equity loan off instead?

Bearing in mind the equity loan will rise with the value of the house

[bobbinwales]

Overpaying was good for me but it depends on what interest rate your paying... if your on a low rate and its going to stay low maybe its fixed and you can get better returns elsewhere (though unlikley as savings rates are low)

[carrot99]

Pay the equity loan last it is interest free.

[Ellipsis]

> Ellipsis that’s one of my queries though in the long run will I save more by ignoring the equity loan for a few years and just making overpayments on the mortgage..Or by paying the equity loan off instead?

If you're in a position to pay off the equity loan, then do so - it will probably cost you less in the long run. But to pay it off by taking out another mortgage means saddling yourself with more debt. You need to be sure you're in a position to repay this debt.

The nice thing about overpaying your mortgage is that, if you hit a rocky financial patch or have other other demands on your finances, you will be able to stop overpaying and just go back to normal payments. It's very flexible.

Think of your current situation like this. You've bought a smaller house and you're paying the mortgage on it, but you're living in a bigger house rent free.

[sumairahu]

The interest rates will certainly rise, so I will advise you to overpay the loan. I took out a mortgage, and I will pay it off 20 years ahead. But I analyzed this decision very well with the Sheffield Mortgage Advice team https://sheffieldmoneyman.com , who were with me throughout this process. I am still young, and I do not want to pay this mortgage for even 20 years; I will pay much more per month than the amount written in the contract so that in at least ten years, I know that I have my own house.