Pay off mortgage quicker or remortgage and buy another property to rent?

Serendipity76

Hi there,

I have a £350k flat with a mortgage of £150k left on it. I am starting to think about my future financially. I am on a salary of £50k and am 34.

Would it make better sense financially to make overpayments on the mortgage so that I have the mortgage (currently £700 a month) paid off in 5 years or is it better to remortgage (my fixed 5 year is coming to an end soon), release around £60k of equity from the property and use it to buy another property that I can make around £200 a month from if I rent it out?

Any advice/ thoughts would be much appreciated!

Best wishes,

Anna

BitterAndTwisted

No debt must always be better than more debt.

When thinking about investments, it's always better to have your eggs in more than one basket.

mackemdave

Why would you want to invest in something that is due to drop around 10% this year

Incyder

Overpay and own it asap.
You've seen that greed and speculation and borrowing has ruined this countries financial system.

Once you own it and you are safe, then save up the deposit for another speculative property gamble.

Keep your home separate and safe.

Thats what i would do.

Serendipity76

Thanks - I'm not very knowledgeable about financial matters having been pretty irresponsible with my money to date. Having been made redundant a couple of years ago, out of work for a year and then hit by a huge tax bill due to one of my previous employers messing up my tax bill I have now realised that I need to be much more financially savvy.... I would have thought it's better to pay off my mortgage first and be debt free rather than taking on the responsibility and hasstle of another property/mortgage/ tenants. Much appreciated! Best wishes, Anna

property.advert

If you can handle the other property and have enough of a financial cushion then the long term maths almost certainly points in the direction of buying another property. As someone else is buying it for you, your only immediate risk is the amount of deposit you put into it. It really doesn't matter in the short term whether it falls in value by 10% or 50%. If you buy it for 100k and put down 25k and it falls in value to 50k, you still have a profit of 25k after some poor sap has paid your mortgage off for you ! Of course, you would be in negative equity in the short term if it fell 50% tomorrow !

Having a few more years on the clock than you my biggest point of advice is that you can go for it now because your life dictates you can. Add a family, kids etc. additional responsibilities and you can easily be caught in a trap of not being able to take a risk for fearing a worst case scenario. If you have a second property then your life will just fit into that scenario whereas it can be difficult to fit a second property into a full family life.

I'd say go for it but perhaps after building up some more cash rather than overpaying the current mortgage and then looking to get it back as an advance. In the long run a well researched investment property can be very beneficial.

BitterAndTwisted

Get some substantial savings behind you using your ISA tax-free allowance and get stacking some funds into a decent pension-plan.

Imagine how wonderful it will be to be mortgage-free by the time you're forty. Luxury!

Serendipity76

Thanks for the advice - much appreciated.

Anna