really simple ..tons!

toka

We remortgaged our current house 4 years ago in order to raise capital to buy a small retail property with the view that it "would pay for itself" either as a business or ultimately with a tenant in place. Having ridden the recession for the last few years and not been able to contribute much to the mortgage we are now putting a tenant in place. We took out an interest only mortgage of 240,000 and want now to overpay that by about £500 per month. We only have 6 years left of the term - am I being overly simple in thinking that if we do this we will simply reduce the capital by £500 x 12 x 6 ? ie. £36,000. Or is there a bigger financial advantage to doing this? Would we be better off remortgaging again.? I do not think we can pay more than £800 per month so I don't think we can get a deal at that can we? Our LTV with both properties is probably about 40%.

CLAPTON

when you pay capital off the monthly interest will reduce; so if you continue making the same monthly payments as well as the 500 per month then there will be an additional smallish capital anount paid off via the 'normal' monthly payment

dimbo61

Do you get tax relief on the IO mortgage ? if so pay off your home mortgage first and then start on the buisness mortgage.
In 6 years time you can always sell the small retail property but you dont want to have to sell your home

somethingcorporate

By reducing the outstanding amount owed you pay less interest. So by reducing your balance by an additional £500 per month the following month (assuming interest is calculated daily or monthly) you would pay interest on a balance £500 lower than if you had not made the overpayment. Hence, your normal mortgage payment would reduce the capital balance quicker as you have accrued less interest. The quicker you can overpay the more interest you save as you reduce the balance quicker.

Thrugelmir

What rate of interest are you paying on the mortgage?

What plans do you have for repaying the capital debt owed other than selling the retail unit?