Overpayments - put money on mortgage or HTB loan?

[Tinchytot]

Just wondering if anyone has faced this dilemma and what you decided. We have a govt loan of 20% of the value of our house. We live in a desirable postcode of a big city and house prices should remain stable (at the moment they’re soaring, but don’t imagine that will be sustained).

We can overpay a bit each month or we could pay a lump sum before remortgaging in a few years. We have to start paying interest on the HTB in 3 years and when we pay it off we have to give them 20% of the equity gained on the house. The options for paying it off are to either add the full amount to the mortgage or pay it off as a separate loan.

I hope that makes sense. I imagine if you’ve been in the same situation it makes sense, but if not then it might sound very muddled.

Isn’t it both the same, effectively?

If you overpay the HTB loan then that goes down, so less to find when you remortgage to pay it off.

If you overpay the mortgage, you should have greater equity to remortgage to pay off the HTB loan.

Not an expert and there will be things like checking the terms for overpayment on the mortgage etc.

My instinct would be to overpay the HTB loan to get rid of it as quickly as possible. Simplifying things for the future.

We are overpaying the mortgage, we plan to remortgage at the 5 year point to get rid of HTB, by overpaying we are building up our equity faster and making it more likely we'll be able to afford the full mortgage with HTB amount "absorbed" into it. No idea if that's any help?!

Thanks both of you. Our first instinct was to do what you say @nameme8746, but we’re thinking that if we reduce the HTB now then we’ll have to pay out less of our equity when the house is valued again for the remortgaging. But then if we were overpaying on the mortgage now we’d be chipping away at the interest we’re paying. Just not sure which one is better

I'm not sure if I'm understanding you correctly, but you can only pay off HTB in stair cased lump sums, I thought it was 10% but could be wrong on that as I've not really considered myself. So I think you'd need to get a valuation done then pay off 10% or 20% in one go? If the valuation is done right before you remortgage it won't make any difference because the amount you owe on HTB will be the same at that point however you pay it off if that makes sense, but if you've overpaid the mortgage in those 3 years you'll have reduced interest.

I guess the only way opting to save for HTB would be better would be because you'd potentially need a smaller mortgage and thus save money on interest in the long run? But I'm not sure if it would make much of a difference.

@name8746 that’s really useful information because we didn’t know that! Or perhaps we were told but I’d always just assumed we would add it to the mortgage in 5 years. In that case I can see that it makes much more sense to put down on the mortgage instead. I was hoping there was a way around giving them so much equity, but it seems not!

That's how I've understood it so might be best to double check else where 😂😂 I know what you mean, the way I try to look at it is it's interest free money for 5 years, if it was on my mortgage I'd had been paying about £200 more a month (at least) that's £12,000 over 5 years so I can discount that, house needs to increase by 16% to owe them that much. If our house increases by 16% then the money I owe the government is no different to what I'd have paid in interest anyway, any increase more than 16% I'm just going to be very pleased that despite buying in a pandemic my house will have increased more than £60,000! £48,000 of which is mine.

I hope that makes sense!!!