Mortgage v Savings Question

cloudwalker_3

I have a question about paying off a mortgage. It's also about savings and investments so I'm posting it in two places (I also posted it to House Buying, Renting & Selling). Apologies for this but I really struggled to know quite which which thread to place it in.

I'm due to get a chunk of money from my parents shortly, around £25k.

I have an outstanding mortgage on a flat that I currently let out to tenants (this brings in around £975pm). The mortgage stands at £20,875. There are about 15 years to run and monthly payments are currently £158. I'm on a 10 year fixed rate which ends in 2015. The flat was was brought as a long term investment for my pension.

If I fully repay the mortgage early, I cop an early repayment charge of £90. However I can pay in an extra £500pm with no penalty.

My dilemma is this:

Do I part play off the mortgage by over paying over the next three years (minus £1,500 - to keep me on the radar as a good customer as at some point I want another buy to let mortgage to buy a second flat) and invest the remaining £7k? If I do invest this £7k, where to put it? Interest rates are so bloody low right now that everything looks crap!

Or should I just keep steadily paying down the mortgage and look to invest the whole £25k with a view to it growing into the next deposit amount for the next by to let flat?

Or something else entirely?

Any helpful advice would be gratefully received.

Thanks!

:question:

PeacefulWaters

What's the rate of interest on the mortgage?

What will the interest rate be when the fix expires?

Is the penalty really as low as £90? What will it be when the fix expires?

Are you paying income tax on the rental income and using the mortgage interest to offset this?

Do you have any other debts? If so, how much and at what rates?

How much is saved in your contingency account?

jimjames

Personally I wouldn't pay off a £20k mortgage on a btl bringing in £950. LTV must be very low on that.

Depends when you might need money but investment isa or pension might make sense if you have no other investment. That will take £15k now in isa. Buying another house with no other investment is all eggs in one basket.

planteria

the mortgage payments will offset against the rent, and reduce tax?

& yes, depends what other investments you have?

atush

I would not pay off the mtg on the rental, as the interest offsets your rental income.

I would instead look at the size of your cash buffer for emergencies (you need a larger one with a rental flat) and other investments like Pensions and S&S isas instead.

Having a flat as a pension is not tax efficient.