Pay off mortgage quicker or buy rental houses?

aaron54321

I’ve got to the point in my life where big expenses have been paid ( wedding etc)

I now have a disposable income of approx 2k per month to use on whatever is financially best.

I currently have a personal mortgage with an outstanding balance of 91k, I could pay 2k per month off this and be mortgage free in just over 5 years ( tracker mortgage so can make unlimited overpayments)

I have a buy to let with an outstanding balance of 42k on an interest only mortgage. I can only overpay 10% per year.

My questions are...

Do I concentrate on personal mortgage and pay it off in 5 years?

Or do I pay off buy to let first? I will be limited by how much I can overpay (Interest rate is much higher on this, 5% compared with 1.69 on personal mortgage)

Do I pay them off side by side? Pay maximum allowable off buy to let and out rest towards personal?

Or do I aim to purchase 2 or more buy to let’s over the next couple of years with the disposable income and once I’ve done that use the income from them to start paying off mortgages?


Any advice would be greatly appreciated

aaron54321

Anyone that can advise?

pinknsparkly

Can I ask for a bit more information about your personal circumstances?

Age?
Do you have children? Planning on having any? What age are they?
What age do you hope to retire?
How well set for retirement are you?
Are BTLs part of your retirement plan?

I ask this, because my current plan (while residential interest rates are so low) is to start investing most my spare money into stocks and shares for retirement. If I decide to retire early, then I would use some of this money to pay off my remaining mortgage. In effect, I am aiming to become "mortgage neutral" where I have enough money to pay off my mortgage, but it is earning more in stocks and shares than I am paying in interest. That said, I am still making small OPs each month towards my mortgage.

I would focus first on making sure you have enough money for the cost of kids, and then focus on making sure you're all set for a good retirement. Only THEN would I consider the mortgages.

I caveat everything I am about to say with the statement that I am not a BTL landlord, and know very little about it (including whether there is a tax advantage to maintaining mortgages on the properties). Given the difference in interest rates, I would definitely be focusing on OPing the BTL up to whatever fee free threshold there is over the residential mortgage. Do you WANT to buy more BTLs? From my reading on these boards, I get the impression that the income you typically get isn't worth the hassle of being a landlord, but as you are already a landlord you're in a far better position to judge if that's what you want to do. However, if they do form part of your retirement plans then you need to keep in mind that they do require a reasonable amount of work and upkeep, which you may need to outsource (and pay for!) as you get older.

If I woke up tomorrow in your shoes, I would make the max OPs on the BTL that you can do fee-free and invest the rest of the £2k/month into low cost tracker funds held in pensions or ISAs. And I wouldn't OP the residential mortgage at all.

fiisch

No one can say either way - it's a personal choice, which is ultimately determined by how accepting you are of taking a risk.


Is Buy To Let a good investment in the current climate? Many people think not. Is there still good money to be made in Buy To Let? Almost certainly.


However, your mortgage pays for the roof over your head, and gives you the added security.


You pays your money, you take your choice.


Personally? Neither.


Why not Buy To Let? For me, it is too much of a gamble right now - Mark Carney has said in the event of a No-Deal Brexit, property prices could fall by as much as 30%, and recent tax changes have meant many small, private landlords are selling up.


Why not overpay your mortgage? It is likely at a very low rate and assuming you have >60% LTV, you will not be physically saving that much interest by overpaying right now, versus putting your money to work in other ways.


Personally, I would be looking to invest a good monthly chunk in a Stocks & Shares ISA in a fund (e.g.: Vanguard Lifestrategy Fund, other funds are available). I would probably split this so I max out £20k / year ISA contributions and use remaining £4k for mortgage overpayments. It's not for everyone, there is risk attached, and of course investments can fall as well as rise, but provided you invest in a diversified fund over a long (minimum 5 years) period of time, history suggests you'll make a decent return on investment (8-10% per year as an approximate benchmark).


You might be better posing a similar question on the Savings & Investments Board.

ANDY597

Personally, I would use a snowball calculator to understand the total amount of interest I could save by paying off one or the other or both. The snowball calculator will also advise in which order to do it efficiently. https://www.whatsthecost.com/snowball.aspx

Once I had that "magic number", I would consider whether investments could out grow the money I could save if that makes sense.

As fiisch points out a well performing fund based on your appetite for risk would be a good place to start understanding the way forward.

Theres Robo investors if you don't fancy choosing yourself and Lifestrategy is popular on these boards.

Apologies to PinkandSparkly, but I don't think I would be investing in single stocks and shares in the present climate unless I had exhausted other avenues first. Id perhaps consider dividend stocks but not ahead of a good fund.

Nobody has mentioned pensions yet, perhaps a SIPP would be a good option to look at.

Your new buy to let idea is still plausible, passive income is always good, but nobody knows what turn its going to take post brexit hence the uncertainty.

Bottom line for me, diversify, have property, buy to let, savings, investments, pensions and make sure you are as tax efficient as possible across those by maxing out isa allowances etc.