MF in 10 years, but I need your help...

EspressoLungo

Hello,

I’m hoping to get some straightforward advice on this forum.
Our current situation hasn’t been planned as such, its just the way it has become, over the years.
I’ve read other posts, and the guide to overpayments vs. paying off mortgages, and still I don’t know what’s best…

Here’s our situation

We have two mortgages:

Main mortgage (house)
Remortgaged in 2014 with Nationwide: Balance of £193k or so outstanding.
10 year term repayment mortgage at 3.19% fixed until 30/9/2019, then standard mortgage rate.
Currently overpaying by £300 each month.
10% of overall mortgage value overpayments allowed each year.

Secondary mortgage (flat), rented out (approved by original lender)
Santander. Balance of £25,800 outstanding
Interest rate of 1.4%
2 years and 1 month left (I increased monthly repayments many years ago by approx £250 to reduce the term).
Each month we have a little spare cash after mortgage & other flat-related outgoings are paid (approx £120 / month)

My wife and I have savings in the form of 2 x ISAs (Nationwide), each with a balance of just over £12k, paying a measly 0.75% (we haven’t switched recently).
I understand from the various guides on this site that this interest is negated by that we pay on our mortgages…

We have access to more cash if needed in our (own) company account, but this is subject to income tax if we withdraw it. But its there if we need.

My question is about what’s our best move:

Use our ISAs to
Pay off the Santander mortgage (flat), and use monthly rental income (of £1.3k) to overpay the Nationwide mortgage for as much as we can each month? or
Pay off a lump sum (max 10% of balance) of the Nationwide mortgage whilst keeping the (cheap) Santander mortgage (that’s being paid by our rental income)? In 2 years we could then plough all that rental income into our main mortgage…

Or perhaps there’s an even better setup I haven’t thought about! Thus my question on this forum.

Many thanks in advance for anyone answering my question.
Any pointers greatly appreciated!:A

laurasavon

The interest rate on your residential is higher and also the interest on your rental can be offset against tax so financially you would be better off paying a sum off the residential mortgage. But it may feel better knowing there is no mortgage on the flat should it ever be empty for a period of time.

Alchemilla

A lot depends on how likely you think you are to keep your job/s I guess?

EspressoLungo

Thanks laurasavon and Alchemicalla.

As the flat is in London, at most it will be empty for 1 month max between tenants for refurb / refreshing (it hasn't been in 10 years though!)
As for work, good point, its our own company, been going 13 years, so no reason for income to drop significantly...