Which mortgage to pay up first?

tunnel

Hi guys and gals,


I have about half a dozen BTL's on mortgages ranging from 4%-5.5% but I also have my former home on a BTL at 2.5%(c&g). When I bought my present home I used some of the equity from my former home in the way of extra borrowing(2.5% still). In effect that property has 2 mortgages on it, the latter the one I used to buy my home so I can't claim the interest on it against tax.


My question is this, I can afford to make considerable overpayments but to which mortgage is the best? Normally I know I'd be advised to pay down the higher rate but that's claimable to tax whereas my former home isn't.


I'm a basic rate tax payer(20%) if that makes any difference.


Any pointers would be appreciated thanks

TrickyDicky101

@5.5%, the after-tax cost to you is 4.4% so this is considerably more than the 2.5% you suffer on your residential mortgage, so pay down the 5.5% one first.

dimbo61

You should also look at the LTV on each property!
You may get a better deal at 75% LTV or even 60% so work out what each property is worth and outstanding mortgage/Loan on each.
Same with you own home but 2.5% would be very hard to beat.
Do you have Consent To Let with your former home ? and could the rate be increased ( Time limit on CTL!)

tunnel

Thanks, I'd always assumed the residential mortgage was the one to pay down first(and have been doing), how wrong was I?


Dimbo, my former home is mortgaged BTL so all above board, no need for CTL(currently SVR)

dimbo61

Like I said you need to look at the LTV of all the properties and also plan for Increase in BOE base rates.
If you have one property at 75% LTV on a five year fix that might be fine.
If another is 87% and on the SVR ! then pay down that one first

tunnel

Hi Dimbo,
Only 2 of the mortgages are over the 4% marker, they are up for renewal in the next 12 months and will be tied in for 5 years when they're ready, all the properties are 60% or less.


is it still better to pay the highest rate BTL mortgage off first rather than the residential(BTL former home)?

getmore4less

You pay the highest net after any tax relief, the one that puts more £ in your pocket..

You should have structured this so all the lending qualifies for the tax relief

extracting capital from a business through borrowing still qualifies for tax relief.