What Would You Do In This Situation? Paying Off Equity Loan..

[Raidergal2022]

I am in the UK

Bought a new build house in 2020 first time buyer. Got an equity loan so I am paying the mortgage on 70% of it and the council have 30% of the share of whatever it is worth at the time or sells for. The equality loan is interest free. The rule is I can either pay it off early or they will demand the payment (30% of whatever it is worth) in 22 years

I am wondering now that house prices are reducing is now a good time to remortgage to pay it off if I can? Although bank interest rates are sky high

My other option is to overpay my current mortgage then when it comes time to remortgage I will owe a bit less

What would you do?

[Hymie]

You don’t provide any absolute figures to work with, but if the 30% loan is really interest free, you should keep this until the end of the mortgage and then pay it off.

If you went to a bank or building society, and said that you want them to give you an interest free loan for part of a mortgage – but in consideration for the interest free loan, you will pay them back the loan plus the increased house price over the mortgage period, they would just laugh at you.

If you want to consider this another way, imagine that the interest free loan was for 100% of the house value – at the end of the mortgage period, you could sell the house and give the loan company their dues – and have lived in the property for 25 years rent free.

[KristalBee]

House prices are not reducing. Unless you are thinking of keeping the house for 22 years then leave things how they are. It’s a really bad time at the moment to tie yourself into a mortgage.

[Hazlinny]

You asked a very similar question last year and were given advice - have your circumstances changed hugely since then?

[Raidergal2022]

Thanks Hymie - you are right can’t beat the interest free equity loan at the moment. I just think that the longer I leave it before paying it back the less time I will have to pay it therefore more interest.

Thanks Kristalbee

Haz- yes I contacted a financial advisor last year who advised against paying the loan off. Things have changed and also house prices have decreased/bank interest rates risen

[Hymie]

Another way of looking at this interest free loan is that you’ve purchased a much better property than you would otherwise have been able to afford. If after living in the property for 25 years, you sell the property (pay back the loan) and then downsize as a result – you would have had the benefit of living in that better property for 25 years, at no cost of the betterment to you.

[Peter Pedant]

equity loan at 0% sounds quite nice - so keep that

and so.... buy and mortgage or rent...
that depends on your judgement of what happens over the next two years say - what will the mortgage rate be - I reckon at least 5% so if the 30% needs a loan of £30 000 ( say: you have nt told us the capital sums and percents wont do),
so interest only that is £1500 for one year and £3k for two

so so long as the capital value of your house is over 3k in two years as your estimate

yes buying out is a good deal - at those figures I have guessed