help with maths - addidional borrowing

monkeymortgage

hello all,

my first post on here with a view to becomming less financially clueless! unfortunately sums are not my strong point so I am finding this hard.

my dilema is this: should i borrow extra on my buy to let mortgage to reduce the balance on my residential mortgage (as i can claim tax relief on BTL mortage interest)

If anybody can help me with my sums, please could you say how to work it out rather than giving an answer......

here are the figures:
owe £34k on BTL @ 5.4%, property worth approx £100k

owe 165k on residential mortgage (£90k @ 4.49% and £75k @ 3.39%) worth approx £138k

many, many thanks if you can give any pointers!

Tinker009

Hi, I'm assuming that you're taxed at the 20% basic rate of tax. Therefore, any interest you pay on your buy-to-let mortgage obtains tax relief at 20%. Let's say you borrow £50k against your BTL, I think the sums are then:

extra mortgage interest on BTL: £50k x 5.4% = £2,700
Less: 20% tax relief £( 540)

Net additional interest £2,160 p.a.

But you will be saving interest on your home mortgage as follows:

£50k x 4.49% = £2,245 p.a. (this will be £1,695 p.a. if you can only set off against part of mortgage with rate of 3.39%)

Best case scenario you're looking at saving £85 per annum, perhaps with any fees of extra borrowing on the BTL it may not be worth it? You'd also need the check that the rate of 5.4% would be the same if you took additional borrowings. The savings will be larger if you're a higher rate taxpayer, if so then just substitute 40% in for the above rather than 20%.

Hope this helps!!

monkeymortgage

many many thanks for your help tinker.....I willl be sitting down with a calculator and doing some thinking....though i have to admit that the potential savings weren't what i'd hoped they would be!

whilst on the subject does anyone know if my mortgage company will see the reason for my borrowing more money against one house to reduce balance on the other as a "valid reason for additional borrowing"?

thanks again