Buy to let - should I pay lump sum off capital

shirleyJ_4

Hi, I have a buy to let property with a fixed rate "interest only" mortgage of 5.29% for 3 years. As bank savings interest rates are so low at the moment, I am thinking about paying some of the capital off my buy to let mortgage instead of saving my money in the bank. I am only allowed to pay 10% per year until the fixed deal ends.

I realise that I am allowed to claim tax relief on the interest of my buy to let mortgage, and can claim it against my tax return expenses.

So I am therefore asking if I should in fact pay any capital off my mortage at all?, because if I do, then this will reduce the amont of interest I pay on the mortgage and in effect reduce the amount of tax relief I am allowed to claim.

I will be making more profit but paying more tax?

Hope this makes sense?

ShirleyJ

poppysarah

What does your business plan say?

Robert_Sterling_3

I do not know the finer points of tax avoidance but what you are suggesting reminds me of people who do not want to do overtime because of the extra income tax they will have to pay. I have always thought that extra income even after tax is still extra income.

silvercar

Robert_Sterling wrote: »

I do not know the finer points of tax avoidance but what you are suggesting reminds me of people who do not want to do overtime because of the extra income tax they will have to pay. I have always thought that extra income even after tax is still extra income.

I agree. Don't let the tail wag the dog.

mlz1413

Do you have a mortgage on your own house?
Any loans, credit card balances?

If so pay those first.

I think paying off the mortgage on a BTL depends on your long term plans, if you wish to sell when prices rise, then you may as well pay off some of mortgage.

If you intend to keep as a source of income for when you retire, say this is in over 10 yrs time, then I would keep the capital for now and ensure BTL is kept in good repair. Interest rates will rise at some point, for savings and mortgages, so lump sums can be paid off then.

That said depending on what 10% of your mortgage is compared to your total savings you may want to pay off some whilst in the fixed rate.

shirleyJ_4

Thank you all for your quick responses. I only joined today and was impressed by your helpful responses to my question.

My mortgage on my own property has been paid off and I do not have any credit cards or loans.

The BTL was purchased in 2004 with a view to selling it when my husband and I retire, so we are planning to hold on to it for at least another 5/10 years.

Our intention was always to pay off the BTL mortgage when we sold the BTL, but as we have the option to pay 10% off each year until the fixed rate ends, we just wondered if it was worth doing so, with saving rates being so low at the moment.

I guess it is swings and roundabouts!!!

thanks again
ShirleyJ