Overpay on repayment or interest only mortgage?

Bogbean

Hi, I'm a long-time subscriber to the site but new to this forum and wonder if anyone could advise me?

I have 2 mortgages. I have an interest only mortgage (5.19%) on a property I let. The mortgage has a borrow back overpayment option of up to 30k at present. Last yr I paid back 10k on this mortgage to reduce it from around 110k to 100k. I am aware that my rent has to exceed my monthly mortgage payments by a given % but can borrow at least the 10k back to reduce my other mortgage and still be compliant with that rule.

My own home has a 150k repayment mortgage at 4.79% fixed until 2011.

I am toying with moving the overpayment I made on the rental property to my own home to reduce that mortgage instead but am not well-versed in the implications. I am aware (now!) that my overpayment on the rental one will mean I made slightly more profit on it so has a tax implication but am otherwise unsure as to whether it is better to overpay on a repayment mortgage or an interest only one.

I would be most grateful for any advice and apologise if I've missed this elsewhere and duplicated a thread! I also hope it makes sense!

getmore4less

Unless you can claim tax relief on both full mortgages then it will be more efficient to pay down the loan on your house if you are a tax payer.

Let_Us_See

Agree.

But remember to keep some capital to one side to cover any period when the property is tenantless.

Bogbean

Thank you. At risk of sounding (more!) ignorant, I'm just a standard tax payer etc so presume,as you say, that this is the best course of action.

I'm guessing it's also sensible to reduce the term rather than enjoy the drop in my monthly payments which will occur as a result of the overpay! We'll probably sell both properties within 5yrs to buy our "home for life" so neither are long-term investments.

Bogbean

Let_Us_See wrote: »

Agree.

But remember to keep some capital to one side to cover any period when the property is tenantless.

Thanks. I have taken out insurance for this as I'm a huge coward when it comes to risk and would have worried myself silly! *blushes*

dimbo61

please consider the equity you have in your rental property!
Most lenders want at least 25% equity before they will give you a buy to let mortgage / remortgage.
Try to overpay your home first and then the BTL property but consider the equity in both properties.
At the end of the day if you had both properties mortgage free you would have a home you own and a BTL earning you income ( mortgage free!)

Bogbean

dimbo61 wrote: »

please consider the equity you have in your rental property!
Most lenders want at least 25% equity before they will give you a buy to let mortgage / remortgage.
Try to overpay your home first and then the BTL property but consider the equity in both properties.
At the end of the day if you had both properties mortgage free you would have a home you own and a BTL earning you income ( mortgage free!)

Thanks. I currently have approx 40k in the rental property - it's lost about 40k since I bought it but I'm hoping it'll recover a little of that over time.

I have about 100k in my house.

It's not until my marriage ended a few yrs back that I have had to learn more about such things and although I'm not stupid on an academic level I'm horribly naive at these things!

I really appreciate the responses :j

CLAPTON

you can offset interest on money used to buy the BLT against you rental income

the interest you offset does NOT have to be against a mortgage on the BLT

you can claim interest on loans up to the value of the BLT when first rtented out.


so e.g. if your BLT was mortgage free but your house had a big mortgage you can still claim tax relief for the interest against your rental income.

Bogbean

CLAPTON wrote: »

you can offset interest on money used to buy the BLT against you rental income

the interest you offset does NOT have to be against a mortgage on the BLT

you can claim interest on loans up to the value of the BLT when first rtented out.


so e.g. if your BLT was mortgage free but your house had a big mortgage you can still claim tax relief for the interest against your rental income.

Thanks - it's a lot to learn. I have to do my first self-assessment this year so not looking fw to that!

I owned the rental place first then moved into a new home with hub. No idea if that makes any odds lol. I don't think I'll ever be owning either property outright as will probaly sell both in next few yrs to buy one house with a smaller mortgage.

To be honest I never wanted to have a rental property but it had lost so much money (mine, not mortgage) that I was reluctant to sell it if I could avoid it. I originally had a tiny mortgage of 7k and pretty much owned the house as part of my divorce settlement but it dropped from 187k to est'd 120k (at the peak of the decline - is there such a thing?!) which was a lot to lose.

Let_Us_See

Clapton posts:

you can offset interest on money used to buy the BLT against you rental income

Correct. you can offset mortgage interest paid, set up costs and ongoing expenses against rental income.

the interest you offset does NOT have to be against a mortgage on the BLT

Yes, it does

you can claim interest on loans up to the value of the BLT when first rtented out.

No, you can't.


so e.g. if your BLT was mortgage free but your house had a big mortgage you can still claim tax relief for the interest against your rental income.

No, you can't.

Hope Inland Revenue do not read these posts!