Pay off the Mortgage or Not

AndyF1_3

This would normaly be a no brainer, pay off the mortgage if the interest rate is lower on the capital that would be used to pay it off than the mortgage interest rate.
Here is the extra parameter which is clouding my decision.

The mortgage is £16K, 50 mths to run with an interest rate of 3.5% variable - £335 pm. Now this loan is on a rented property and so I can offset the interest on the loan against the income.

I'm a 40% tax payer is it worth paying off the mortgage or not?

silvercar

So you save 40% on the rental income because you have this interest charge as an allowable expense. So the effective rate of interest is 2.1% (60% of 3.5%). Question is whether you can get 2.1% or more elsewhere for your money.

Thats the short term answer. Long term, will you always be a 40% tax payer? Could you use the money elsewhere? Will you need to borrow it in the future?

There is a miniscule amount of fraud protection built into having a charge registered on the property. If anyone pretended to be you and tried to secure a loan on the property, the first mortgage people would find out about it and contact you. Minor point.