IF you could pay off your MTG from savings - would you?

DVardysShadow

DJ_Mike wrote: »

I think you need to read the thread more carefully! The OP has said that the 5.24% mortgage gives him interest relief which he'd otherwise have to pay in tax, hence my big post above! But it's not quite as simple as just reducing the 5.24% mortgage!

Yes, if you read "With regards to overpaying the 5.25% fixed, I think I am happy to keep this as it offsets aginst the income" very carefully it's about tax.

DJ_Mike

Yeah, I've just spent some time on the numbers as well, and I fail to see how paying interest on your mortgage is in any way more beneficial than paying off the mortgage and simply paying tax instead.

I think the point with interest relief on BTL is that it's supposed to offset the fact that, as long as you're paying interest on a mortgage, you're already earning less money from your rent, because you're losing it to the bank.

So if your rental yield was £15,000 but your mortgage interest was £15,000, you are not earning anything, because all that money is being syphoned away.

The difference between your rent and mortgage interest is an actual income, so the government is (annoyingly) entitled to its cut.

If you really want to earn money from your property, you need to be earning more from the rent than you're paying back in interest, otherwise you might as well never have bought it/be renting it out at all! But you also need to accept that the government is going to pinch your earnings whether you like it or not.

mini_cooper

Thanks for all your comments, I really appreciate them.

Just a quick reminder though, my 5.25% rate is fixed until 2012, so I would need to look at the small print to see if they allow overpayments. BTL mortgages have different rules and regulations, but I will have a look.

TBH, I am very tempted to go and buy another while the market is low, as although it is hard work and you need to keep your tenants happy, I am looking forward to retiring at a reasonable age and these will allow me to do that.