Remortgage interest-only?

thomasfox

Hi and thanks for your expertise in advance!

I wish I could help my sister with finance, but I know next to nothing when it comes to mortgages and remortgaging, so I'll appreciate a good advice!

My sister has a house she bought nearly 10 years ago but she's taken out an interest-only mortgage and has been paying interests ever since with no capital repayment whatsoever. The house appreciated in value by about 70% since the purchase date. We are seeing a mortgage adviser on Monday, but it would be good to prepare ourselves before we dive into his office.

The question is - is it possible to remortgage and get the difference based on current value of the house from the bank and use these funds for other investments? I'm not sure if she can do it if it's interest-only. At the moment, there's about £120k difference.

Another question - assume the funds would be released to her, she's thinking of using the funds for several BTL investments/deposits that'd be also interest-only mortgages. Good or bad plan? Also, I was told that these extra funds would also be tax-free? Please confirm if that's the case.

Are there any other pitfalls to look out for or perhaps a better plan to improve her financial situation?

Sorry for asking so many questions in one thread!

Thank you so much.

amnblog

All these questions are best held for the adviser at your sisters meeting next week. They should be answered in the light of understanding the whole situation.

Generally, she can turn some, not all, of the equity into cash ( subject to affordability) without a tax bill and leaving what she has as interest only. Whether that is a good idea, or whether plans for the cash are a good idea is a different question.

thomasfox

Thanks for your reply!

Thrugelmir

First question you need to answer is how you intend to repay the existing debt.

Secondly leveraging with debt isn't a one way street.

Thirdly without realistic number crunching factoring into account all aspects including tax. Is your idea going to produce returns better than you would achieve through a slower more patient approach using other vehicles.

Fourthly with the changes in stamp duty a high proportion will be lost in purchase costs.

Money does make money. Spent unwisely though can cost you your shirt. How much risk are you prepared to accept to achieve your goal.

ViolaLass

Does she want to be a LL? Does she have any experience of doing it? Will she be able to cope if a tenant trashes a property?

thomasfox

ViolaLass wrote: »

Does she want to be a LL? Does she have any experience of doing it? Will she be able to cope if a tenant trashes a property?

Yeah, that's the plan to become a part time land lady. She currently works as a property manager at a local letting agency so I'm sure she's more than qualified and capable to look after a few properties of her own whilst she manages nearly 100 buildings at work.

thomasfox

Thrugelmir wrote: »

First question you need to answer is how you intend to repay the existing debt.

Secondly leveraging with debt isn't a one way street.

Thirdly without realistic number crunching factoring into account all aspects including tax. Is your idea going to produce returns better than you would achieve through a slower more patient approach using other vehicles.

Fourthly with the changes in stamp duty a high proportion will be lost in purchase costs.

Money does make money. Spent unwisely though can cost you your shirt. How much risk are you prepared to accept to achieve your goal.

Existing debt would be repaid with rental income. The mortgage rates we've looked up would come up to about £600-700 a month and the place should rent for £1,200-1,300 a month through the letting agency she currently works at with guaranteed rent every month (confirmed).

in terms of achieving better returns through other financial vehicles - that's why I'm asking if there's a chance to convert some of the existing equity into cash that could be spent on BTL deposits with mortgages that are interest-only to generate monthly rental income. If that's possible then I'm positive that BTL would yield a better and less riskier return rather than going into paper assets.

Would we have to pay stamp duty when remortgaging? I thought that applies when a house is bought and not when remortgaged?

jcaow

Have you factored in the cost of the additional stamp duty on the cost of the BTL purchases? Whilst rental income will pay the interest only mortgage, what are the plans to pay off the purchase price of both your sister's home and the rental properties?

Thrugelmir

thomasfox wrote: »

Existing debt would be repaid with rental income. T

That's unlikely to be accepted as a repayment vehicle by a lender. Let alone the basis to be advanced even more. While you use the word guaranteed. There's no certainty from a lenders perspective. Nor may they consider it responsible lending considering the regulatory supervision they are under. As the nature of what you are proposing is more of a commercial venture rather than consumer borrowing.