Two mortgages: which to repay?

CLAPTON

dimbo61 wrote: »

I would leave the BTL on IO until you have cleared the mortgage on your own home!
You dont get tax relief on the home mortgage and you can always sell the BTL but you dont want to have to sell your own home do you ?
What does the BTL go onto in Feb ? and can you afford to sit on that as its IO ?
When you do get the money check how much you are allowed to overpay and do that ( say 10%?) and fill cash ISA,s in both names (other half).
Consider when you are looking to remortgage next July 2012 to go onto an offset deal and only put £16K in the offset with the rest paid off the home mortgage! GOOD LUCK

this is not so

you can claim the INTEREST on loans that equal the value of the rental property when first let;
it doesn't matter whether the loan is on the BTL property or not

so you can claim interest on the BTL mortgage and your own home mortgage on the capital up to the value of the rental property on first letting

DecisionsDecisions

CLAPTON wrote: »

this is not so

you can claim the INTEREST on loans that equal the value of the rental property when first let;
it doesn't matter whether the loan is on the BTL property or not

so you can claim interest on the BTL mortgage and your own home mortgage on the capital up to the value of the rental property on first letting

Thanks Clapton: I was not aware of that. I only started buying my current home last summer so 2010/11 will be the first tax year I can claim interest on both homes for the rental property, so I haven't missed out to date, and I'll keep it in mind for the tax return!

abouttimetoo

DecisionsDecisions wrote: »

I've had a quick trot through the repaying your mortgage guide so I'm aware that if I were to pay a lump sum off the buy to let mortgage, it would be used to pay off the interest and not the capital, but that aside, I'm not sure what to do.

Hi Decisions decisions, some great advice from the others and i'm not too sure I can add much more though I would keep the BTL on IO as this brings flexibility and you can still make OP's if you wanted to (that's what I do) Also, somewhere in the back of my mind i think there is something that states you have to have a BTL on IO - something to do with the fact that if you have a repayment you would be deemed to be benefitting e.g. tenants repaying mortgage or something like that. There's nothing to stop you finding out what the repayment figure would be and just making an OP on top of your IO payment up to that amount.

Also, I'm not sure I'm reading it wrong or if it's the way you've written it but the bit I quoted regarding a lump sum on the BTL just being used to pay off the interest isn't correct as without a doubt your full interest will not have been front loaded so any lump sums you make reduce the capital.

Good luck with your plans

dimbo61

just a quick question ? Did you buy the BTL property as a home ! first and live in it for a while and then rent it out?
After 3 years of renting out you might have to pay capital gains tax when you sell so check this out !

DecisionsDecisions

Hi abouttimetoo! Thanks for the additional info. I remortgaged on the BTL last year and the original BTL mortgage was definitely on a repayment basis but it was a few years old so maybe there's been a change of rules since then (?!) Anyway, I see what you mean about flexibility so I think I'll find out (or try to work out!) what the repayment amount would be if I wanted to make OPs.

The bit I wrote about OPs on an IO mortgage was based on the following (short) extract from the 'Should I Pay off my Mortgage' guide. Perhaps I have misunderstood it (as previous comments to my post, including your own, make more sense!):

"Those with interest only mortgages need to be careful. Normally the repayments only go towards repaying the interest of the loan, not the capital (the actual amount you borrowed)."

Any ideas?!

DecisionsDecisions

Hi Dimbo61. I did live in it first and it's been rented out for around 7 years now: nice short void periods too. I am aware I could be eligible for capital gains tax if I sold it, but I'd also heard this would not be the case if the proceeds from any sale were then to be invested into my own home (which would be my preference in time). I imagine moving back into the BTL property is also an option although that would not be something I'd happily choose to do. Being practical though, it is a well located property that suit me if I was looking to downsize as I get older.