pay off mortgage on a let property?

crankymum

Hi
I have a house worth approx £160000 which I let out for £525 per month. The remaining mortgage is £18000 as I have overpaid on it (and it has increased massively in value) I was going to pay this off but a financial advisor has said that it would be better to invest this sum elsewhere (in stocks and shares) as the returns would be greater. I do not pay tax on the interest payments for any mortgage on the rented out property but am not convinced that keeping a mortgage going will save me money as there are arrangement fees to think of and the interest added to the amount that I owe.
Any advice? The mortgage is fixed at 4.65 per cent until November so was going to pay it off after that.

epz_2

personaly i would pay off the morgage since otherwise it seems the same as borrowing 18k to invest in shares and hopeing they do better than the interest rate your paying on the cash.

last i heard the stock market growth was 7% so deduct at least 5.5% probably 6% by the end of the year and you are risking a wad of cash for a potential £180, granted the market couls go up more etc but personaly i would prefer not to have a big debt than a potentialy small payout.

oh and you have to wonder what kind of commission your FA gets from punting you shares.

Ian_W

Your financial advisor is spot on about not paying it off. You're effectively getting an £18K LOW INTEREST loan courtesy of Gordon Brown - I'm sure he'll love you for not wanting it but you'll be paying tax on your rental income, some of which you needn't be paying, just by binning the loan going.

In fact I'd go further. You could remortgage the property to the value it was when you first started letting thereby getting the max in tax relief. Do you have a mortgage on your main residence? If you do you could use the money raised to pay that down and save on interest you can't get tax relief on.

Whether you invest in the stock market depends on your attitude to risk, you should get a good return but it isn't guaranteed. I take it you don't use an accountant to do your tax return? I'm sure one would be advising you the same - maximise the tax relief you can get on the earnings from your BTL.