Overpay mortgage or overpay BTL

KennyH1

We have a mortgage on our property and a BTL on a flat. Would it be best to over pay on one or the other? Just thinking of the tax implication now the mortgage interest cannot be deducted.

ReadingTim

Aren't BTL mortgages usually interest only?

I'd overpay on the one with the higher interest rate. Or the one which allows overpayments to be borrowed back, in the event I was short of cash at some point in the future. Dunno if any of that is impacted by the tax implication you mention though.

elonii

I've been overpaying on my BTL to reduce my exposure to the interest being counted towards higher rate tax threshold. As it happens my BTL has the highest interest rate so good reason to concentrate on that. Maybe you could hedge your bets and split extra cash between the two?

saajan_12

You still get some tax relief on the BTL - assuming your annual BTL interest payments are above the higher rate threshold, for this year you get 35% relief, gradually down to 20% from 2020 onwards. So effectively you're paying 65% of the BTL interest rate this year (80% from 2020 onwards).

So compare your residential rate to 65-80% of your BTL rate and overpay the most expensive. Usually you can pay off upto 10% of your mortgage balance per year on BTLs.

You can also look at if one is nearing the end of a fixed rate deal, you may want to overpay that one so you can remortgage for a lower balance on ideally a lower LTV to get a better rate if that's possible for you in the near future.