If you used the government’s Help to Buy scheme to purchase a property, your payment arrangement is different to buying a home using a standard mortgage.
When your current mortgage deal comes to end, you will have some important decisions to make.
In this blog, we explain the different options for remortgaging a Help to Buy mortgage, so you can make an informed decision.
Understanding Help to Buy equity loans
Buyers who took out a mortgage with the Help to Buy scheme were able to benefit from using an equity loan to reduce the amount needed to borrow for a mortgage. For example, you may have paid a 5% deposit, borrowed 15% as an equity loan and the remaining 80% was borrowed using a mortgage.
The first five years of the equity loans were interest free but after the five years, you start to pay interest on the loan, in addition to your monthly mortgage payments.
The equity loan had to be paid off after 25 years, or at the point you sell your home, and the equity amount was calculated based on the property sale price or when you paid the loan off, not the value of the property when you bought it.
When to remortgage with a Help to Buy loan
When your initial mortgage term comes to an end, you should look at your remortgaging options.
After the first five years, you will start paying interest on the equity loan at 1.75%. The interest rate then increases every April by adding the Consumer Price Index plus 2% (or Retail Price Index plus 1% if the equity loan was taken out before December 2019).
As your monthly payments will go up considerably at this point, it is important to review your remortgaging options and avoid paying the standard variable rate on your mortgage.
