Interest only vs. repayment - what to go for?

Private_Storm

Hi,

We 100% own our current flat and have just had an offer accepted on a house. We want to keep the flat and rent it out, but want to remortgage it to help pay for the new house (upon which we are getting a seperate mortgage).

I have two questions. The first is

a) because we are letting out the flat, does the mortgage on it have to be a buy-to-let or can we just remortgage and state at the time that the flat will be rented out?

And the second is perhaps a little trickier

b) I simply cannot get my head around the repayment vs. interest only thing for the flat - what is good way of deciding which is best?

It makes my head hurt to think that with an interest only, at the end of the term I would still have to pay the loan off. Ignoring my perhaps irrational feelings here, the payments on a BTL (which I kind of think we have to get) doesn't work out THAT much less than if we were going the repayment route. We also have the option of going for a combination deal i.e. half repayment, half interest. Perhaps this is the best route?

Any help/comments/enlightening appreciated!

toonfish

you need to mortgage the flat on a buy to let basis. You can also offset the interest payments on this mortgage against the rental income, reducing any tax liability.

For this reason I would go interest only on the flat, and use any excess rent to reduce your residential loan providing the interest rates are broadly similar.

It makes sense to maximise the tax offseting where possible.

Private_Storm

Thanks for the prompt reply Toonfish, much appreciated.