Sell and Pay off or keep mortgage?

boyse7en

When we moved 5 years ago we re-mortgaged our house to raise the deposit for the new one, and kept the old one as a buy to let. Both mortages have been on interest only, so no capital paid back as yet, and as we have just had a baby, and my partner has given up work, we are unlikely to be paying anything off them on a regular basis in the near future.

Old house is now worth £175k with £100k mortgage left, and after paying the mortgage each month we get about £100 left over from the rental income, most of which pays for gas check, repairs etc.

Our home is worth about £300k, and has a mortgage of £88k on it and I'm paying £380 per month interest.

I'm looking for opinions on whether we should sell the old house and use the money to pay off all but £15k on our home mortgage, or hang on to it and hope it rises in value by 10% over the next 10 years or so and we can pay the lot off. The rent on the old house should also rise a bit in the future, so we should have a bit more income to play with.

Not sure if it is relevant, but my take home pay is £1180 per month.

Bestthingsinlifearefree

Personally I would sell the other house and get mortgage free ASAP. You then have financial security and that is the most important thing for your family.

The couple of hundred pounds you then have spare once you have cleared the mortgage you can invest in shares or ISA's etc.

I think property prices have had a good run and we won't see to much growth in prices in the short / medium term and prices may even fall back.

Kaz2904

Have you worked out how much it would cost to get a repayment mortgage?
What plan do you currently have in place to repay the mortgages and how long do they have left to run?

I would say that you are in a very good position financially at the moment even with only one wage as the rent covers the mortgage with money to spare. I would be very tempted to try and get a cost for repayment or part and part on both properties. You can then reassess from there.
For example our mortgage should be £649.75 per month 18 year term and £90000 loan.
You could afford to repay the mortgage anyway without selling one and think how much money you would have spare when both mortgages are paid off.
If you think you are unable to budget for this then try popping a SOA over on the debt free wannabe boards. People are usually willing to pick it over and see where you can reduce your outgoings.
My main concern would be to get a fixed rate for at least 5 years so that you know you can afford your mortgages at least until your baby goes to school.
Maybe others will have different ideas to me when they come on after tea?

boyse7en

>The couple of hundred pounds you then have spare once you have cleared the mortgage you can invest in shares or ISA's etc

Unfortunately, if we sold the house now we would still have a mortage of £13k left (£175k - £100k - £88k = -£13k), but i should be able to afford a repayment mortgage on that amount.

>What plan do you currently have in place to repay the mortgages and how long do they have left to run?

At the moment the plan is to sell one house off and use the money from that to pay off both mortgages. Both mortgages have got 20 years left to run. I reckon that at some point in the next 20 years the old house has to be worth £188k, as it has gone from £100k to £175 in 5 years (in know everyone says values will drop, and they might in the short term but i still think they will rebound enough in 20 years to cover it.)

Kaz2904

Did the mortgage company really let you take out 2 interest only mortgages without knowing how you were going to repay them?
I must be really sheltered, I never knew that happened I thought you had to prove you had an investment vehicle to repay them (other than another property?)!

Gut feeling I would still want to see if I could hang onto them both and get the smallest mortgage onto repayment, clear that and then set to the next one!
I still think you should go to the dfw board and stick up a soa.
From what I've heard over the last few months there aren't many btl landlords who can cover a mortgage on the rent alone so I would go for it. Your wife could always do some casual work like a paper round if necessary.

boyse7en

>Did the mortgage company really let you take out 2 interest only mortgages without knowing how you were going to repay them?

Yes, don't remember any issues at all. Certainly they advised going interest only for the BTL as the mortgage interest is tax-deductable.

When my partner goes back to work (may be a few years yet) then we should be able to go to repayment on the home mortgage, keeping the BTL one IO.

Excuse my ignorance, but what is a SOA?

minimoocow

Hmm . . .

We are in a similar position in that we have a btl as well and have been toying with the idea of selling it in order to be mortgage free. Main difference is both of ours are repayment.

After doing the sums I think we have decided we would be better off in the long run if we can hold onto both - not sure if it helps but we considered the following:

1. BTL is on fixed rate of 5.35% which has another 2 years to run so we would incur penalties if we sold now.

2. Price has risen on BTL significantly in past 18months due to rising prices generally and also because of work done. Whilst we don't expect this to continue at the same rate in the future we have sufficient equity even if prices do fall and if they do continue to rise we don't think we could get better elsewhere.

3. If we were to sell we would incur estate agent fees and Capital Gains Tax which would reduce amount we got.

4. If we sold and paid off our mortgage in full we probably wouldn't save the extra but would feel we had more money to spend so in the long run would be worse off than staying as we are.

I appreciate your situation is a bit different but perhaps understanding our thought process might help?

MMC

boyse7en

Forgot the CGT if we sold the BTL! That would make the sums less favourable to sell at the moment, as we'd have more left on our home mortgage to pay off.

One reason for keeping it is that if I had no mortgage at all I would save about £5000 per year in payments which I could save or spend as I see fit but even if house prices rise only slightly (about 2.8% average would be over £5k ) in the future I would make more out of that as the gain is cumulative.

Kaz2904

A SOA is a statement of affairs and can be found on the debt boards.