Best way to borrow money

molit

Good morning everyone.

I was wondering what people thought about the following. I am due to have some building work done (well in about 5 months), and expect to pay about 35k (I've got the builders sorted, quotes etc) I have been overpaying my mortgages over the years, and intend to take money out of one of them, I was wondering which one is best. i currently own two properties, I rent one out, and live in the other.

Finances are as follows
current cash available for building work ~18k

Main residence where the building work is due to take place, value about 220k, outstanding mortgage 124k, rate of 2.52% until Feb next year

Rental property - value about 170k, outstanding mortgage of 90k, currently got a residential mortgage with permission to let until april next year, at a rate of 3.99%.

My thought is to take another 20k of equity out of the rental property, for the tax advantages, and as it has a very favourable LTV?

Thanks for reading, and any advice

HelpWhereIcan

molit wrote: »

Good morning everyone.

I was wondering what people thought about the following. I am due to have some building work done (well in about 5 months), and expect to pay about 35k (I've got the builders sorted, quotes etc) I have been overpaying my mortgages over the years, and intend to take money out of one of them, I was wondering which one is best. i currently own two properties, I rent one out, and live in the other.

Finances are as follows
current cash available for building work ~18k

Main residence where the building work is due to take place, value about 220k, outstanding mortgage 124k, rate of 2.52% until Feb next year

Rental property - value about 170k, outstanding mortgage of 90k, currently got a residential mortgage with permission to let until april next year, at a rate of 3.99%.

My thought is to take another 20k of equity out of the rental property, for the tax advantages, and as it has a very favourable LTV?

Thanks for reading, and any advice

You are thinking along the right lines in the way you are comparing the options that the two properties present.

I would also ask (considering the fact that you have been overpaying) how quickly you expect to be able to repay the additional £17000(not sure where 20k comes from as 35-18 = 17).

Also consider the cost of any arrangement/valuation fees for arranging the further advances and the effect this will have on the total cost. e.g. if you have to pay £250 for a valuation and £500 as an arrangement fee you have to factor in an extra £750 into your calculations that may mean it pays to get the £17000 as an unsecured loan.

e.g. even a middle of the range personal loan over 5 years at 9.9% APR will cost you £356.85 pm and a total of £21,411 over the 5 years.

On the face of it, your mortgage interest rate of 2.52% would cost you £305.11 to repay over 5 years and therefore a total of £18,306 which would seem to be cheaper than the loan option but how much would you have to pay in fees and what happens to the rate (and fees) when your current deal finishes?

On the tax side; yes you can offset the cost of interest payments against the rent you receive but how much do you actaully gain by doing this? have you worked the figures out?

I would say the Buy to let is (all being equal) better than your main residence as the risk of repossession falls on your buy to let; but the argument is the same for a personal loan.

In short, calculate how quickly you think you'll repay the extra and then, knowing what will happen to your mortgage rates and what fees are payable for extra borrowing/a new deal, compare that to a personal loan over the same term - always where possible using the finance method puts your home at least risk.

DVardysShadow

So you would borrow on the 3.99% rather than 2.52% in order to get the tax advantage? Myself, I wouldn't pay more than 99p to get out of paying £1 in tax.

molit

cheers for the replies - the reason for the extra cash is a bit of contingency, and also carpets etc.

Guess its calling the mortgage providers tomorrow to find out about fees etc

getmore4less

molit wrote: »

My thought is to take another 20k of equity out of the rental property, for the tax advantages

Borrowings do not have to be on the same property to get the tax advantages. There are ways to get the relief on borrowing upto the value it first became a rental.

molit

hi, I've heard that before. my rental property was worth about 165k when I first let it out, so when I do my tax return, can I write off that whole amount - apologies if this has been asked before - some people choose to be landlords, I kind of had it thrust upon me