What happens if your savings could equal your mortgage?

Angelina-M

Good morning all.

I have a mortgage of 135k that is on an Openplan .5 above bbr. I have finally paid off my rental property mortgage that is worth about 140k before fees.

I'm getting £550 for my rental property which is a yield of 4.9%. If I was to sell the property and put the money into my savings account it would mean the savings would cancel out my mortgage. What happens then.. do I still pay my monthly payment?

I am not going to use this money to pay off my mortgage as we are thinking of moving to a bigger house in the next year or two and need that as a deposit and will just transfer the mortgage as well.

Sorry if its a dumb question, I rang Barclays but after being put through to about ten different departments I gave up :mad:

Angelina-M

Sorry, I don't know if its worth adding but the first 60k of my mortgage is endownment with the rest being repayment. I wouldn't want to pay off the endownment part as they mature in a couple of years.

Thanks again for any help.

hzcmar

I'm not quite sure I understand your question.

So you had two mortgages (with the same bank?) and you paid one of them off. Now the rent from that property is being paid into a savings account.

Assuming you're still paying the other mortgage on time, why would your bank care that you have the equivalent amount in savings? They'd rather you kept the mortgage, to keep paying interest. You'd only stop paying your monthly payment if you decided to redeem your mortgage.

Angelina-M

Sorry I wasn't clear. I have an offset mortgage which means that my savings account is linked to my mortgage. What Im thinking of doing is selling the property that I now own outright and putting the money into my savings account. This will then offset against my mortgage on my home. It will probably be about equal to my mortgage, so in effect I wont owe anything.

However when I move to a bigger house I'll be taking on a bigger mortgage so this situation is likely to be only temporary when I have a large savings amount.

The rental property yields just less than 5%

So my question is, is there any benefit to selling the rental and losing the yield to put the money into my offset savings?

Typhoon2000

It would mean you would not pay any interest on the amount borrowed for your residential property if you had the same amount in saving. You would still need to make capital repayment to reduce the mortgage though (or use you saving to pay off your martgage completely)

Angelina-M

Thank you for that.

So if I'm understanding this correctly, I could have more or less the same in borrowing and saving under the offset umbrella. And if I keep paying my normal monthly payment for the 135k I could chip away nicely at my mortgage?

If i've got this right then it is a much better idea than to keep on renting the 5% yield property out. I benefit more by selling it and using the money to offset my mortgage.

TrickyDicky101

What rate are you paying currently on your mortgage? If it is 0.5% above BoE Base Rate then it makes no sense to swap a 4.9% yield for a 1% one (even taking into account the effect of tax).

Angelina-M

Thank you. Yes thats correct. Paying 1% interest on mortgage, getting 4.9% yield on rental.

I took that into account when sat looking at my figures, but I thought that interest saved on my mortgage as it was being fully offset would make selling it a better option.

I think the difficult bit for me is that its likely we will be moving in the forseeable future as my daughter and Grandchild have now moved in and there has become quite a few more of us than bedrooms! If we weren't moving I would just pay off my mortgage.

originalmiscellany

Angelina-M, you need to update your blog! It's interesting but not been updated for approx 2 years. What you've posted is good though!

Thrugelmir

Angelina-M wrote: »

If I was to sell the property and put the money into my savings account it would mean the savings would cancel out my mortgage.

Have you factored in that you may have a capital gains tax liability to pay on selling the property?

m_13

By paying off your mortgage you've also removed all of the mortgage interest that you can put against your BTL income so will be paying more tax!

Why not remortgage your BTL property and use that money rather than selling it?