Interest Only Mortgage

follyfoot

Hi I would like to pay my mortgage off early. Is it better to take an interest only or repayment mortgage? Also is it common to pay arrangement fees of £1800 for a buy to let mortgage?

UK007BullDog

Repayment mortgage and overpay if you want to get rid of it early.

Yes, a BTL is an investment and the lenders want to have their cut on your good fortune to be able to invest in the property market. It is not seldom for them to ask from 0.5% to 4% deposit. You can set it off the tax.

dunstonh

remember that clearing the mortgage on a buy to let will increase the amount of tax you pay. Their can be benefits of leaving the lending in place and using your capital that you would have repaid it with to do something different.

jamesd

Whether it is interest only or repayment has no effect on how long it takes to repay the mortgage. That is determined by the amount you're paying and the mortgage interest rate and other terms. Pay the same on two otherwise identical mortgages, one interest only, the other repayment, and they will be paid off at the same time.

As dunstonh mentioned, the common approach with BTL is to expoit the tax relief that BTLs get that residential mortgages don't get and just use the excess income for other things. Like paying off the mortgage on your own home, which doesn't qualify for tax relief. Or accumulating money for more BTL deals.

Since you've indicated that your risk tolerance is high by going for a mortgaged BTL (and it had better be high - it is high risk) you might also consider stocks and shares ISA investments which should grow faster than the interest saved on a BTL mortgage. That should let you repay faster than simply overpaying.