Bear in mind that what you must pay back is a percentage of the property’s current value, not what you paid for it. If house prices are likely to go up over that five-year period, it’s best to pay off the loan quickly.
The Government’s Help to Buy Equity Loan scheme is designed to help those struggling to save for a deposit for a home to get on to the housing ladder in England, by giving a loan worth up to 20% of the property value (40% in London), which is interest-free for the first five years.
Since 2013, nearly 340,000 homes have been bought using the equity loan scheme.
Paying back your equity loan
The rules are clear: you don’t have to repay the equity loan itself until you come to sell your property, OR at the end of your main mortgage term – whichever of these comes sooner.
However, you don’t have to wait until either of these points. You can pay back the equity loan at any point you want.
So when should you repay the equity loan? Unfortunately, there are just too many variables for us to say exactly when the best time is to repay. We’ve already shown how an equity loan might compare with a normal mortgage in terms of total interest paid, but even this relies on several variables staying constant.
If you’ve already got enough savings to repay the equity loan, and your finances elsewhere aren’t stretched, you might consider it a good option to repay the equity loan sooner rather than later. This may particularly be the case if your equity loan has decreased in value, or if you think that property prices are about to shoot up.
Thinking of repaying your equity loan
You can repay it but there are rules!
The minimum you can repay is 10% of your property’s value.
You don’t have to pay off the whole equity loan in one go, but the rules state you must repay at least 10% of the property’s current value.
For example, you could repay 10% of the property’s current value if you took out a 20% loan, or repay 10%, 20% or 30% of the property’s current value if you borrowed 40%. If you borrowed less than 20% though, e.g., a 15% equity loan, you could only repay the loan in full, as you must part-repay in multiples of 10%.
Whether paying off the loan in part or in full, you’ll need to have the outstanding loan amount assessed. This must be done via a valuation by a surveyor accredited by the Royal Institution of Chartered Surveyors, which will cost you a fee.
You can pay off the equity loan by remortgaging.
If you’ve not got the savings to clear the equity loan, you could consider remortgaging. This means borrowing more on your mortgage to pay off what remains of your equity loan.
Whether or not remortgaging is the best option for you will depend on factors such as these:
- Payments will need to be manageable. Don’t stretch yourself with a larger mortgage unless it’s affordable.
- Check if you’re currently within a fixed rate period. If you leave a ‘fixed’ or ‘tracker’ mortgage period early, you will probably have an ‘Early Repayment Charge’.
The first step is a conversation with one of our experts.
If you’d like to learn more about mortgage products and how we can help you, please don’t hesitate to get in touch with our team. We’re here to help you navigate the ever-evolving world of mortgages and guide you toward a brighter, greener home.