Re-mortgaging BTL

james.hope87

Hi all,
I am soon to be re-mortgaging. It was a residential property that I lived in, but now I am letting it out.

I have been looking at buy to let mortgages and I am keen to keep my monthly repayments down.

My broker recommended an interest only mortgage but I am a bit wary as then I need to pay off the full balance in one lump sum at the end.

What are thoughts?

Thrugelmir

Are you declaring the income to the tax man?

james.hope87

Thrugelmir wrote: »

Are you declaring the income to the tax man?

It has only been let since august, so I am writing a letter to the tax man with the earnings and deductions next week.

Yorkie1

It is not uncommon for BTL mortgages to be I/O.

The reasoning being two-fold:

- you can only deduct interest from your profit for tax purposes, so with a I/O mortgage you can deduct all of the mortgage payment throughout the duration of the mortgage. With a R/P mortgage, you have to be careful about declaring only the interest portion in your self-assessment return, and of course the amount of interest will go down over time.

- it is an investment property, with the sale of the property being the ultimate strategy to pay off the mortgage at the end of the term. Over 25 years, the value is highly unlikely to be lower than the capital outstanding, and so the sale proceeds would in all but the rarest cases cover the repayment amount.

james.hope87

Yorkie1 wrote: »

It is not uncommon for BTL mortgages to be I/O.

The reasoning being two-fold:

- you can only deduct interest from your profit for tax purposes, so with a I/O mortgage you can deduct all of the mortgage payment throughout the duration of the mortgage. With a R/P mortgage, you have to be careful about declaring only the interest portion in your self-assessment return, and of course the amount of interest will go down over time.

- it is an investment property, with the sale of the property being the ultimate strategy to pay off the mortgage at the end of the term. Over 25 years, the value is highly unlikely to be lower than the capital outstanding, and so the sale proceeds would in all but the rarest cases cover the repayment amount.

Ahh ok, so if I am certain I can sell it then, IO makes sense?

Typhoon2000

You could also extend the term or remortgage again before the mortgage is due to expire.

james.hope87

So can I, theoretically, re-mortgage as interest only for the next 25 years then in 25 years time remortgage as capital repayment?
I guess then I would have to start paying interest again so it would be stupid to!

ACG

depending on your age yes.

What do you want from the property? Do you want an income or do you want to build up the equity in the property? This will answer your question as to whether you put it on repayment or not.

If you want the flexibility you can put it on interest only and then repay as and when you wish.

james.hope87

I haven't made up my mind yet.

But my current plan is to make a bit of extra money from it and then sell it in 10 years when it has gone up in price (hopefully) (I bought it a few years ago when the prices were fairly low).

So I guess income is my goal. It is only small and is a good bachelor pad, so I can't ever see myself moving back in there.