Interest Calculation, is this correct?

malli79

Hi
I'm going round in circles a bit trying to establish whether my calculations are correct!
I am looking at a BTL mortgage and trying to establish how much deposit to put down so

Mortgage 1
20% deposit at a rate of 4.99% fixed for 5 years
Deposit £20,000
Interest over fixed period £18,885
Mortgage balance at end of fixed period £70,853

Mortgage 2
25% deposit at a rate of 4.09% fixed for 5 years
Deposit £25,000
Interest over fixed period £14,409
Mortgage balance at end of fixed period £65,432

So if I take mortgage 1 and I assumed I would settle it at the end of the fixed term it would cost me £109,738 but mortgage 2 would cost me £104,841 so by putting down a larger deposit I would save £4,912. Is this correct?
Thanks

Thrugelmir

Not only is the deposit larger but the interest over the fixed term you'll pay is lower.

HappyMJ

It depends...the rent needs to cover the interest charged plus 25% (usually). For tax reasons you would be better off using as little deposit as you can and taking an interest only mortgage and using the excess income to pay off your own residential mortgage (or any other debts you have) as quickly as possible....but then you need to figure out the savings taking into account any tax savings you could make. It's not an easy calculation to make. You also need to consider any possible capital gains tax charge. You might decide to sell in a tax year in which you have no personal income at all due to retiring early and have nothing to pay.

malli79

Thanks Thrugelmir and HappyMJ
Yes the rent does cover 125% when tested at a rate of 6%. We do not have any other debts and already considerably overpay our other mortgage (should be cleared within 5 years). We would then direct all spare cash to the BTL with the aim of having 2 houses paid for within 8 years which would the generate an income into retirement.
I have thought about interest only, I think I need to do some further calculations as my initial thoughts were all though we would save on tax surely this wouldn't be as much as the interest on a 25 year mortgage. You're right though a very complex calculation which I think I need to consider in some more detail.