Which to overpay 15 June 2010 at 10:05AM in Mortgage-free wannabe 7 replies 843 views

haras_nosirrah

Have a residential mortgage and a btl. Am going to be able to overpay about £300 a month. Not sure which to go for.

Part 1 of residential mortgage - £83,000 at 1.03% above base with a collar of 2% (currently 3.03%) over 25 years

part 2 of residential mortgage - £37,000 at 4.29% fixed over 11 years

or btl mortgage at 6.29% repayment over 25 years.

I am not sure which mortgage or part of mortgage to overpay to make the most savings.

Ideas on a postcard please.

Jonbvn

A rule of thumb is to overpay the highest interest rate debt first. However, since the highest rate is a BTL mortgage, I would guess interest is offset against rental income for tax purposes.

Given the above, it would likely be better to OP the 4.29% mtg. However, beware of any early repayment charges that usually apply to fixed rate mtgs.

dimbo61

What is the LTV of the BTL as deals expensive unless you have a good LTV of 75% or less!

getmore4less

On the residential the fixed is the choice.

part 1 is fixed rate upto 1.5% base rate rise then needs another 1.26% rise to catch up the part 2. so ages before that will happen.

So then it is between that and the BTL and how much tax you are paying on any surplus income.

£100 off the 4.29% saves £4.29
£100 off the 6.29% saves £6.29 (0%tax)
£100 off the 6.29% saves £5.03 (20%tax)
£100 off the 6.29% saves £3.77 (40%tax)

haras_nosirrah

Hi and thanks for responses

BTL is 75% LTV. Is fixed for 5 years with post office. The rate is high but the fees were very low and seemed to work out better that way

Am a 20% tax payer so by your reconing I am better paying of the btl?

The residential is with me and my fiance, the btl is my previous property so just in my own name. With the residential it is Nationwide where we still have overpayments, underpayments and borrow back. Don't have the flexibility with the btl

What to do, what to do.

dimbo61

So do 50/50 on BTL mortgage and residential mortgage and build up funds in the Nationwide overpayment pot ( just in case)

greent

dimbo61 wrote: »

So do 50/50 on BTL mortgage and residential mortgage and build up funds in the Nationwide overpayment pot ( just in case)

seems a good compromise

dimbo61

The BTL is a buisness with tax relief on the interest part of the mortgage payment so the bigger the mortgage the relief you can claim but you have to pay the residential mortgage out of earned ( and taxed) income so with the overpayment reserve pot !!! you may well be better off OP your 4.29% fixed part first.
Just be aware of the LTV on the BTL ( which is fixed for the next 5 years)