Buy a new property or shall I pay towards existing mortgage?

kukoo

Hi all,

I have an an existing mortgage of £220,000 on a 3 bed house and the house value is approximately £260,000. My fixed terms has ended about two years ago and since than I have been paying low interest only monthly hence I have managed to save about £20k.

My question is, shall I pay this savings towards my existing mortgage and change to repayment etc... OR shall I use this saving (plus add £10/20k from family and friends) as deposit and buy another one/two bed property?

Thank you all for your time and helpful advise.

lippy1923

kukoo wrote: »

Hi all,

I have an an existing mortgage of £220,000 on a 3 bed house and the house value is approximately £260,000. My fixed terms has ended about two years ago and since than I have been paying low interest only monthly hence I have managed to save about £20k.

My question is, shall I pay this savings towards my existing mortgage and change to repayment etc... OR shall I use this saving (plus add £10/20k from family and friends) as deposit and buy another one/two bed property?

Thank you all for your time and helpful advise.

Why would you buy another place? Are you meaning to sell up and move house? Or buy another and rent it out?

Obviously it will depend on how much you earn if a lender will let you get another mortgage on top of the one you already have.

If you are on IO payments, where are the funds going to come from at the end of your mortgage term, to pay off the loan?

Personally I would use the money and pay off existing mortgage.

somethingcorporate

What would you need a second property for? Are you talking about becoming a landlord.

It's much more than a simple financial decision based on your having £20k sitting around.

kukoo

I was thinking in longer terms if it will benefit me to make my property mortgage free quicker:

House value: £260,000
Remaining mortgage: £220,000
Method: Interest only (at present)
Savings: £30,000 (including family/friends help)

Option: 1
Lets say I pay this saved £30k towards existing mortgage which reduces my mortgage from £220,000 to £190,000 and I change from interest only to repayments. After five years my remaining mortgage is approx £160,000 and my house value increased by £15k.

So after five years:

House value: £275,000
Remaining mortgage: £160,000
Difference: £275,000 - £160,000 = £115,000

OR

Option: 2
Will it be better if I get another buy to let mortgage and pay my savings towards a deposit etc.. so after five years of repayments I would have paid some of the mortgage and the value of both properties increases etc..and may be later I sell one of the property and make one mortgage free.

So which Option is better and makes me mortgage free quicker?

I am sorry I don't know how to explain it better.

Many thanks

somethingcorporate

I understand but you are relying on increasing house prices or someone else to pay the mortgage on your B2L.

It will work if you invest in the right property and are lucky enough to get great tenants. If you pick the wrong property and have bad luck you'll get screwed for thousands.

Becoming a landlord is more of a decision than simply financials. Being a landlord has financial, personal and legal implications as well as taking up a lot of time. Fancy sorting out a leaking toilet at 3am? it's your problem as a landlord. How do you factor that into your question "which will get you mortgage free quicker"?

Becoming a LL is a massive decision and should not be entered into lightly. Good luck!

lippy1923

Personally I think you should forget option 2 and don't even think about another property yet.

kukoo

Thank you very much for your advise.....

Option 2, Too much risks and assumptions and possibly a headache if bad tenants etc...

I better stick to option 1 and have a peace of mind.....

Spiggle

Hi,

I'm glad you have gone with Option 1 as it's the only one that makes sense.

You haven't said what your mortgage interest rate is. You may want to find out what your current provider will offer as a rate for transferring to repayment. Then you need to have a look at other providers to see if you can achieve better.

By the way, most providers ask for a repayment vehicle to run alongside an IO mortgage. Have you got one? If not then Option 1 is the only option you should contemplate.

All the best,
Spigs