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Maths whizzes please help!
tracyn
Posts: 10 Forumite
We are about to purchase a new home, and we will be keeping our current property (which is mortgage free - hooray!) as a rental investment.
I'm considering re-mortgaging the existing property to help fund the house purchase so that our main residence can be as low-mortgage as possible (we've done this before due to tax efficiencies).
However my head is spinning slightly with the maths (normally quite good at this sort of thing but I have a newborn at home and very sleep deprived at the moment) therefore I'm hoping there's a maths whiz out there who can check my calculations are correct:
We could release £230k in Equity in our existing property.
We're looking at an interest rate of 2.14% on the residential house purchase, and 4.24% on the BTL mortgage.
By my calculation if we took the £230k as part of our main residential mortgage, this would cost us £4922 per year in interest. If we instead took the £230k as part of a BTL mortgage, this would cost us £9752 per year in interest HOWEVER we can deduct this amount from our profits for tax reporting purposes. I am a 40% tax payer and husband is 45% (we own equal shares so must split the profits) therefore we would save about £4144 in tax per year therefore the net cost is £5607.
If I've worked this through correctly then it makes no sense to remortgage the BTL property, and instead we should take the hit on our residential mortgage as this will ultimately be cheaper.
Does this sound about right or am I looking at this in completely the wrong way???
Thanks in advance!!!
I'm considering re-mortgaging the existing property to help fund the house purchase so that our main residence can be as low-mortgage as possible (we've done this before due to tax efficiencies).
However my head is spinning slightly with the maths (normally quite good at this sort of thing but I have a newborn at home and very sleep deprived at the moment) therefore I'm hoping there's a maths whiz out there who can check my calculations are correct:
We could release £230k in Equity in our existing property.
We're looking at an interest rate of 2.14% on the residential house purchase, and 4.24% on the BTL mortgage.
By my calculation if we took the £230k as part of our main residential mortgage, this would cost us £4922 per year in interest. If we instead took the £230k as part of a BTL mortgage, this would cost us £9752 per year in interest HOWEVER we can deduct this amount from our profits for tax reporting purposes. I am a 40% tax payer and husband is 45% (we own equal shares so must split the profits) therefore we would save about £4144 in tax per year therefore the net cost is £5607.
If I've worked this through correctly then it makes no sense to remortgage the BTL property, and instead we should take the hit on our residential mortgage as this will ultimately be cheaper.
Does this sound about right or am I looking at this in completely the wrong way???
Thanks in advance!!!
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