2 Mortgages

Stewboy1978

Hiya

Looking for some advice - I have a £54,000 Mortgage at present over 13 Years on a £110,000 flat which is £465 per month.

I am looking to buy a bigger property but rent my flat out (For around £450 - £500 per month).

Should I keep the smaller mortgage as Repayment or move it to Interest only and use the extra cash to save up to pay at the end?

The bank are ok with me having both mortgages due to the LTV on the first.

Thanks

Ian_W

Hi stew,
I think it's entirely a matter for you. Most investors use IO as it's cheaper thus allowing for greater monthly profits and they consider the eventual sale of the investment property itself, to be the repayment vehicle for the mortgage. With such a low LTV, even allowing for very modest property price rises there is no reason why you shouldn't do the same. Equally, there is no reason why you shouldn't save or overpay the mortgage, except perhaps that as an investment you should be looking to maximise your profit.
On IO at 5.5% your payment should be about £250pm which, on your proposed rental of £450-500 gives a good profit potential, whereas on repayment there is every possibility you'll be subsidising your tenants when you allow for the upkeep costs, buildings insurance, empty periods etc.

HTH & BoL.

EDIT: Didn't have my brain fully in gear with above. There may be tax advantages in going IO and keeping the balance outstanding as it is. The interest is a deductable expense for income tax purposes and when you eventually come to sell the balance outstanding will reduce your capital gain and potentially reduce CGT [lot of variables, depending on amount of gain, time owned, other reliefs available etc]. Speak to an accountant but you may well be better using spare cash to reduce you residential mortgage and leave the rental prop balance as it is.

tony1959

Hi All,

I'm new to the forum so some of the abbreviations I can't work put such as HTH & BoL
no doubt they're straightforward when you know them!!

Thanks

Tony1959

Ian_W

Hi tony,
HTH = Hope That Helps.
BoL = Best of Luck

TTFN!!

tony1959

Thanks Ian

Regards

Tony