Which do I overpay??

Moam

Hi all, need some advice please.. situation is.

We have a just released 17.5k from our house A
We are using that to buy house B
We are renting out house A

Mortgage A is 491 per month
(plus 160 as 17.5k loan has been ported on to it) = 651 (rent is 475) locked in for two years.

Mortgage B is 820 per month for 25 years locked in for 5 years.

We know we have to initially cover the rent shortfall but we are forunate we can overpay up to 350 on one too

We are wanting to be mortgage free as early as possible by getting the rental to pay for remainder of mortgage B

If we overpaid B 350 for 11years it could have it down to around 58k (providing there's no ridiculous interest rate leaps) ...this means A would also be paid up and could start paying for remainder of B....but is this best???

AnotherJoe

You could be mortgage free "as early as possible" by not buying a house that will lose you money every month !
Why are you doing that ? Are you gambling house price inflation will come to your rescue?

dimbo61

Really you should know this before buying house B.
Have you got an accountant ?
You can only offset the interest part of the mortgage against any profit from renting and are you a higher rate tax payer ?
Pay off as much as possible without paying ERC,s

Moam

House B will be our forever home...we bought A for 65k two years ago to get us both on the ladder again after previous marriages and renting etc.it's been valued at 94, hence taking out the money to buy our forever one at 174k

My job role has recently doubled my salary, I don't see the problem really? I just didn't know wether to clear the rental one or chop away at the forever home??

AnotherJoe

The problem is you are losing money on the first house you bought and are letting out ! You say you want to be mortgage free, well why have you chosen to be a landlord that is losing money every month? Why not buy one where the rent is more than the mortgage, not less ?

The other problem is, with a repayment mortgage you can only claim tax relief on the interest and that's soon to be only if you are a basic rate tax payer.

You haven't even mentioned the interest rates on these mortgages which is key to determining which you should pay back first / most

Basically you seem to be launching into this in a financially haphazard manner.

Moam

Appreciate that, I see what you mean, we we struggled to get a mortgage 2 years ago above 70..so we are over the moon we are both able to get a house we love, we are aged 45 at mine. there's 11years left on A (2 years before we can renegotiate) I think it's around 4.9% as it's BTL ...B is 174k at 2.89% locked in at 5 years

I know it sounds haphazard but the idea is the rental is a pension pot so after 11 years well be 55, there'll be another 10 years rent so it should earn it's keep

Yawn

It seems like a risky strategy to me. If you're unlucky with your tenant or you or your partner lose your job, then the whole project may fall apart.

Also bear in mind that you will pay 3% of 174k = more than £5,200 in extra stamp duty for the pleasure of owning both houses.

Sorry to be raining on your parade. It is excellent news that you and your partner found your dream home. I am concerned that you're taking a needless substantial risk with it.

getmore4less

What rates are the loans?

getmore4less

The rental is a gross yield of 6%. on value, it will be less on total cost/value basis.

As long as your mortgage rate is less you will be making some money to cover the costs as part of the payment is capital reduction.

Costs could be the undoing of this letting business.
The extra SDLT is going to make the breakeven point some way in the future.

Moam

But surely the longer we keep the rental the more it pays off, I said a further 10 years but that only puts us at 65... hopefully it may run till we are 70..75 before we think of cashing it in?

jackyann

I am no expert, but in our current turmoil, I wouldn't gamble on no interest rate hikes.