Got a Help to Buy Equity Loan? But don’t know what to do next once your 5 year interest-free period comes to an end?
If you’ve taken out a Help to Buy Equity Loan scheme in England, you’ll enjoy the benefits of an interest-free period for the first 5 years. However, once this period ends, you’ll need to start paying interest on the loan. This can be a daunting prospect, but there are several options available to you.
1 -Remortgage to repay the Help to Buy Equity loan
Remortgaging to raise additional funds to repay your Help to Buy loan can be a good option if you’re looking at staying in the property for the foreseeable. However, there are some things to consider before refinancing.
With repaying the Help to Buy equity loan there are some additional steps you will need to take to start the process. Firstly you’d need to contact Target who administrates the scheme in England, you’d need to inform them of your intention to repay the equity loan. Target will then send you a pack to complete and return as well as need to make a £200 payment to them to cover their admin fee.
You will also need to get a RICs qualified surveyor to confirm the current value of your home. There is a cost involved with arranging this and it is essential to check with the firm how much this is before proceeding. You can find a list of the local firms in your area who can do this via the RICs website. The valuation provided as part of this report will determine the exact amount being repaid to Help to Buy and is valid for 3 months, so make sure you don’t do this too early as could mean the valuation may no longer be valid at the time you want the new mortgage to start.
You’ll need to make sure that you can afford the new mortgage payments, and that you’ll be able to meet the lender’s eligibility criteria. You’ll also need to factor there will also be additional costs to a conveyance to deal with the physical redemption of the equity loan.
2 – Repay the loan in full
Repaying the loan in full may mean using up savings or selling assets, which could leave you in a more precarious financial position. You’ll also need to factor in any early repayment charges that may apply.
There are additional steps which need to be taken to repay the equity loan in full which are detailed within point 1.
3 – Make interest-only payments
If you’re not in a position to repay the loan in full or refinance with a new mortgage, another option is to make interest-only payments. This means that you’ll only be paying the interest on the loan, rather than the capital.
While this will reduce your monthly payments, it’s important to remember that you’ll still owe the full amount of the loan at the end of the term. This means that you’ll need to have a plan in place for repaying the loan in full, such as selling the property or refinancing with a new mortgage in the future.
4 – Downsize or sell the property
If none of the above options are viable, you may need to consider downsizing or selling the property. This will allow you to repay the equity loan in full, and potentially even make a profit.
However, it’s important to consider the costs of selling a property, such as estate agent fees and legal fees. You’ll also need to factor in the cost of purchasing a new property and whether downsizing is viable for you.
In conclusion, there are several options available to you once your interest-free period ends on the Help to Buy Equity Loan scheme in England. Whether you choose to refinance with a new mortgage, repay the loan in full, make interest-only payments, extend the interest-free period, or downsize or sell the property, it’s important to consider the impact each option will have on your finances and make an informed decision.