Over pay residential mortgage or put money aside to cover interest only BTL mortgage?

fajita1982

Hi all! 

I have a question. We have a buy to let mortgage on my old flat that we rent out which is interest only, and we also have a mortgage on our residential property. 

I’m setting up on own business so we can’t save every month but the months where we do have some money left, are we better off over paying our residential mortgage, or setting up a saving account to pay off BTL when it ends? We don’t have anything in place at the moment so I think that’s what we should do....

fajita1982

Anyone  

Mortgage_Adviser

Always overpay your most expensive debtr first. Whether it is residential, bu to let mortgage, credit cards, loans etc.

You may also consider piutting money in to savings account instead if the interest on it (after any tax if applicable) is higher than on any of your outstanding debt.

fajita1982

Mortgage_Adviser said:

Always overpay your most expensive debtr first. Whether it is residential, bu to let mortgage, credit cards, loans etc.

You may also consider piutting money in to savings account instead if the interest on it (after any tax if applicable) is higher than on any of your outstanding debt.

I read somewhere not to pay off the interest only BLT mortgage though because you’re then worse off from a tax point of view? So better to pay off residential? Although that’s the higher rate anyway I think. 

I guess I’m thinking I would be better off putting any excess funds into savings because couldn’t the mortgage company ask for proof that we have means to pay off the mortgage when it finishes in 20years? And we can show we’re trying to do that by having a saving account? 

Thrugelmir

What rates of interest are you paying and earning? 

fajita1982

Thrugelmir said:

What rates of interest are you paying and earning? 

Just looked and actually BTL is higher! 

Residential is 1.98% [£325k] and BTL is 2.24% [£120k, interest only] 

[Deleted User]

Used to be able to offset btl interest costs against tax.  Doesn't work anymore so just pay off the most expensive one first. 

Although I do meet plenty people who want to apy off the one that gives their family a home and worry about anything else after.

No right or wrong answer really 

fajita1982

Deleted_User said:

Used to be able to offset btl interest costs against tax.  Doesn't work anymore so just pay off the most expensive one first. 

Although I do meet plenty people who want to apy off the one that gives their family a home and worry about anything else after.

No right or wrong answer really 

Thanks. Can/do the mortgage company ask for proof that we’re saving towards paying off the £120k? (If we decided to put any money we have left each month towards residential rather than BTL mortgage ...?) We have savings so guess we could show that if they did ask?! And we have decent equity in both properties.. 

[Deleted User]

fajita1982 said:

Thanks. Can/do the mortgage company ask for proof that we’re saving towards paying off the £120k? (If we decided to put any money we have left each month towards residential rather than BTL mortgage ...?) We have savings so guess we could show that if they did ask?! And we have decent equity in both properties.. 

Generally not, the property is expected to be its own repayment vehicle.   Lenders will generally only chase for interest only proof for residential cases as they don't want to be seen to be chucking people out on the street at the end of the term. 

fajita1982

Deleted_User said:

fajita1982 said:

Thanks. Can/do the mortgage company ask for proof that we’re saving towards paying off the £120k? (If we decided to put any money we have left each month towards residential rather than BTL mortgage ...?) We have savings so guess we could show that if they did ask?! And we have decent equity in both properties.. 

Generally not, the property is expected to be its own repayment vehicle.   Lenders will generally only chase for interest only proof for residential cases as they don't want to be seen to be chucking people out on the street at the end of the term. 

Ah I see, that makes sense! 

Will give it some thought. What happens though at the end of the 20 years when mortgage ends and we still have £120k to pay - what do people tend to do? 

[Deleted User]

depends what their business plan is.   A few lenders will let you take a BTL to 100yrs old + now so if the rent is good and the mortgage is cheap then some people just let it run forever.  70 years old with a 35 year interest only mortgage then its likely to see them to end of life. 
Others might sell up and take any equity growth as cash and make some other investments that might be suited to a quieter life