Releasing equity (rental property) to clear home mortgage - good / bad idea?

user45to64

We have two properties - one we live in and one we rent out.
Domestic property has £70k left on the mortgage
Rental property has £85k mortgage on interest only. It is currently worth £155k. The tenant is long term and the rent covers the mortgage and annual running costs. We don't see any profit out of it in terms of cash at the end of the year, just an increase in the equity. I have no immediate plans to sell this house.
Question is - with the cost of borrowing money so cheap at the minute would it be a good or bad idea to release the equity from the rental to clear the mortgage on the domestic property?
I have no intention of going wild with the money we currently pay for the mortgage but would look to bang it into a pension. 

jamielutz1987

@user45to64

If you could share a bit more information, it would be helpful -

- interest rate on BTL mortgage

- interest rate on residential mortage

- current value of residential property

Rule of thumb for a rental property is that you may be able to release up to 75% LTV (subject to meeting lender rent and/or income requirements if top-slicing) so another 30k or so. This would also be accompanied with the costs of remortgaging or taking out a further advance to release that equity.

user45to64

BTL varies on the interest rate - it's <2% currently from memory
Residential is 1.99% fixed until Nov 2022. We are making overpayments on the monthly figure to reduce the overall term. If it was to run it's course without overpayments then 2028 is the projected finish. I would like this to be a LOT earlier.
Residential is £250k based on what other houses are selling for around us

jamielutz1987

Resi - 70k on a 250k house

BTL - 85k on a 155k house, potential to release around another 30k

Similar interest rates around 2%

Your effective BTL rate (after the 20% tax rebate that you get on interest payments through your self assessment) is about 1.6%. But that's at 55% LTV. If you release 30k and take it up to 75% LTV, the interest rate will go up as well.

Taking all that into account and the potential costs associated with releasing 30k of equity, I myself would likely not bother with doing anything.

user45to64

Appreciate the speedy reply! 
I have also been on the phone to a mortgage broker and he has given a similar answer, ie, my basic sums are far too basic and simplistic. I am now kicking myself as we turned the house we did live in, into a rental back in 2006 on an interest only so I've lost the last 14 years to clear down the mortgage stupidly. Looks like I will be better off converting the BTL into a repayment mortgage and chunking that down.

jamielutz1987

user45to64 said:

Appreciate the speedy reply! 
I have also been on the phone to a mortgage broker and he has given a similar answer, ie, my basic sums are far too basic and simplistic. I am now kicking myself as we turned the house we did live in, into a rental back in 2006 on an interest only so I've lost the last 14 years to clear down the mortgage stupidly. Looks like I will be better off converting the BTL into a repayment mortgage and chunking that down.

Out of interest, why would you need to do that? Do you need to pay off more than the annual 10% overpayment allowance (usually available on most BTL products) to pay off capital?