My mortgage on my shared home is ending soon: should I pay it off or increase my stake? DAVID HOLINGWORTH ANSWERS

I have a shared property with an estimated value of €250,000. I own a 40 percent stake and pay rent on the rest.

The mortgage on the share I own is €37,000 and costs me €235 per month. The rent I pay is €595.

My mortgage agreement expires in June. I have €100,000 in savings. Would it be wise to use some of that to pay off the mortgage, or should I use my savings to increase my interest in the property (aka stairs)?

My lease on the property is now less than 80 years. Extending this would cost around £8,000, plus other costs associated with stairs.

A staircase would reduce the rent, but not hugely because I can’t get the full 100 percent. I would also like to keep a decent amount of my savings free. SR

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David Hollingworth replies: You are in a positive position to consider different options as you approach the end of your current mortgage agreement.

As well as allowing buyers to purchase an initial share of the property, shared ownership also allows them to purchase additional shares if their situation changes.

This is known as stairwell and allows you to potentially own the entire property in time.

It sounds like you may have already discussed this with the housing association, which makes perfect sense. This will give you a better insight into the possibilities and the associated figures.

Paying off the mortgage lowers your monthly costs and protects you from higher interest rates.

Those higher mortgage rates could certainly be a reason why you’re focusing more on reducing debt, rather than potentially borrowing more to pursue full ownership.

While it’s relatively easy to understand the potential interest savings that come from paying off the mortgage, it’s difficult to directly compare those savings to the potential benefit if you choose to buy another stock.

Comparing mortgage and rental costs is difficult

Increasing your share of ownership of the home lowers the rent payment, giving you a reduction in your monthly costs.

It sounds like you might be a little disappointed with how much an additional share could reduce rental costs.

However, that is no comparison to paying too much or paying off the mortgage.

What we don’t know is how house prices will behave in the future and therefore how that might increase or decrease the benefit of stairs.

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If prices were to increase and you own a larger share, you will clearly benefit more from that price increase, compared to maintaining the current minority share of the increase.

Of course there is no guarantee that prices will rise, so there is still no right or wrong answer to this, but I would advise you to factor this into your longer term thinking, rather than just looking at the rent reduction to look.

There are also costs associated with buying another stock, so keep that in mind when making your decision.

Renewing the lease is another expense that could be worth investigating further. As the lease expires, costs will increase and the other impact will be on the reach of available mortgage providers, who will have minimal expectations about the remaining lease.

Emergency fund

You are right to want to maintain a savings level. This is important and will depend greatly on your goals going forward.

Having an emergency fund is crucial, so it wouldn’t be a good idea to put all your resources into the property and you’ll need to put some cash aside.

How much you keep depends largely on your financial goals and lifestyle, but it’s nice to have a choice.

Rather than thinking in terms of all or nothing, you might consider a balanced approach, which could involve buying a smaller additional share, allowing you to maintain some savings but maintain your mortgage for the time being.

Now look around for mortgage options that you can switch to at the end of the current deal.

That will help you better understand how manageable it will be to maintain or even increase the mortgage, now or in the future, if you decide to buy outright.

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