BTL mortgage and tax

Gillybean

Not sure if this should go here or tax.

We have a house that we rent out. We pay the mortgage on that comfortably ourselves and bank the rental income.

The tie in period for this property ends in June this year, when we'll be able to overpay if we want. By this point we'll have already overpaid the maximum we can on our residential mortgage for the financial year.

So we could OP on our BTL mortgage. But is it worth doing so? Something tells me it's not really, in terms of tax. Aside from that my gut feeling is to just leave the BTL alone and let it tick over. If we ever needed to pay off some of the balance we could, but we may as well keep the money to pay a lump sum off our residential mortgage when we're next allowed to or when the tie in period for that ends.

Am I right? Or is there a case for OPing on the BTL as well as the residential mortgage? LTV on the BTL is good by the way no danger of neg equity on the horizon.

Cheers.

ILW

Gillybean wrote: »

Not sure if this should go here or tax.

We have a house that we rent out. We pay the mortgage on that comfortably ourselves and bank the rental income.

The tie in period for this property ends in June this year, when we'll be able to overpay if we want. By this point we'll have already overpaid the maximum we can on our residential mortgage for the financial year.

So we could OP on our BTL mortgage. But is it worth doing so? Something tells me it's not really, in terms of tax. Aside from that my gut feeling is to just leave the BTL alone and let it tick over. If we ever needed to pay off some of the balance we could, but we may as well keep the money to pay a lump sum off our residential mortgage when we're next allowed to or when the tie in period for that ends.



Am I right? Or is there a case for OPing on the BTL as well as the residential mortgage? LTV on the BTL is good by the way no danger of neg equity on the horizon.

Cheers.

Overpaying should not affect the tax position one way or another. The only part of the mortgage you can reclaim is the interest, not capital repayments.

JWatson_2

ILW wrote: »

Overpaying should not affect the tax position one way or another. The only part of the mortgage you can reclaim is the interest, not capital repayments.

But it WILL affect your tax position, as overpaying will reduce the debt and hence the interest payable. This in turn increases your net income from the BTL and so your tax will go up. You may be better overpaying your own mortgage, but it all depends on the mortgage interest rates you are paying and what tax bracket you fall into. You need to do some sums...

Trying_to_be_good

You get tax relief on the interest on the BTL mortgage (as you set it off against the rental income) - but that means you're only getting it at a discount of 20% or 40%, depending on your tax rate. So you're still paying 80% or 60% worth of the interest.

You need to do the maths (or tell us the figures) of the interest rates on both mortgages and what the penalty is on overpaying the 'home' mortgage, and how much you could get in savings interest - habe you used your Cash ISA allowance this year? DO you already haveplans to use it next year?

Sue_S

How about moving the BTL mortgage to an offset mortgage. Then you can keep the amount of debt but reduce the interest you have to pay by putting your lump sum into the offset account?