Pay off BTL mortgage and then overpay offset mortgage??

kernowmaid_2

Please bear with me, this is all new to me!

We have a property that is currently being rented out:

Mortgage : £45 k outstanding (19 yrs remaining)
Paying : £400/month (overpaying £80)
Term : 2 yrs remaining (4.99%)

Our property - Offset Mortgage

Mortgage : £109 k, £106 k outstanding (24.5 yrs remaining)
Paying : £750 / month (overpaying ?? each month)
Joint savings : £60 k
Rate : 5.99%

We don't want to use our savings to pay off the offset mortgage.

My question to you is :

Is it in our favour to pay off the mortgage on the rented property and then
use its income of £400/month to overpay the offset, or boost our savings each month. Alternatively any suggestions to get rid of both mortgages asap??

I believe that we will be better off doing the above - or else we'll be paying excess interest on both properties - I also think by doing the above, we should pay off our £106 mortgage within the next 7 years or so. But this is where I need your help and advice!

Also, how much can you earn from a rented property before you have to pay tax on your earnings?

Thanks, any suggestions would be greatly received.

Gillybean

The amount you have on your BTL is small change compared to what you owe on your residential mortgage. I don't have th option to overpay on my BTL, but I'd sooner just let that sit there and gradually pay it off and be chucking as much as I can at my own residential mortgage.

I'd sit tight with your BTL, pay off the necessary and start overpaying on the residential mortgage. IMO keeping the main roof over your head and making that situation as stable as poss should be your main concern.

However, as you rightly suspect, you can only earn so much from your rental property before you start paying tax on it. After offsetting things such as insurance, mortgage repayments, maintenance to the property, etc then i think it's the standard £4-5k (can't recall exact figure, it'll be on here somewhere) that you can earn before paying tax.

If you get all the figures together, sit down and do some sums it should be fairly easy to work out how to keep yourself in the best position possible. But I can't think that hard today, sorry!

getmore4less

kernowmaid wrote: »

Please bear with me, this is all new to me!

We have a property that is currently being rented out:

Mortgage : £45 k outstanding (19 yrs remaining)
Paying : £400/month (overpaying £80)
Term : 2 yrs remaining (4.99%)

Our property - Offset Mortgage

Mortgage : £109 k, £106 k outstanding (24.5 yrs remaining)
Paying : £750 / month (overpaying ?? each month)
Joint savings : £60 k
Rate : 5.99%

We don't want to use our savings to pay off the offset mortgage.

My question to you is :

Is it in our favour to pay off the mortgage on the rented property and then
use its income of £400/month to overpay the offset, or boost our savings each month. Alternatively any suggestions to get rid of both mortgages asap??

I believe that we will be better off doing the above - or else we'll be paying excess interest on both properties - I also think by doing the above, we should pay off our £106 mortgage within the next 7 years or so. But this is where I need your help and advice!

Also, how much can you earn from a rented property before you have to pay tax on your earnings?

Thanks, any suggestions would be greatly received.

ALL rental income is potentialy taxable(no tax free bits) so you need to sort this out. you can claim tax relieve on costs and the interest on loans so that £187 leaving over £200pm potentialy taxable, you can claim on a loan upto the value at the time of renting but you probably need the paperwork to back this up

The first thing is how are you planning accounting for the tax relieve on the rent, it is much easier to have the loan on the BTL property for this rather than have to explain to the tax man how some of the interest on your PPR is allowable.

You can offset the loan interest and some expences so it is best to keep the BTL mortgage as high as possible.


Ok next bit is simple, your interest rate on the offset is higher than the BTL so you should be interest only on the BTL and sticking everything into the offset account.

In 2 years when the rate on the BTL changes or if the offset rate goes down review but probably due to the tax situation you will still be better off maxing out the offset till it is 100%, you don't need to finish the mortgage at this point it costs nothing to have the offset in place and it is easy access to cheap(ish) money.

Also look at www.stoozing.com to boost the offset pot.

Unless you can get a better rate AFTER TAX than the offset ALL your savings should be in the offset pot up to 100% offset. You don't pay it off, it is still savings just at a better rate.

If some of the saving are allredy in ISAs then keep them there because next you should be looking at using your ISA allowances to build up some TAX protected savings for the future, IF your offset lender allows ISAs consider offsetting them. The tax free benifits of ISAs last long after the mortgage is cleared and as you have over £12kpy spare at this point which is well over any future ISA allowance so using up some now is worth it.


First thing to sort out is the tax situation, HMRC like this to be neat and tidy.

OK one final thing how much is this BTL property worth are you making decent money on the capital tied up in it or would you be better off selling up and investing elsewhere.

getmore4less

Just noticed in Feb you only asked about the offset mortgage

http://forums.moneysavingexpert.com/showthread.html?t=768387

Would have been a good idea to ask about the BTL situation then or is this new?

Old_No.7

I agree with getmore4less: i have a property where I used to live that I now rent out, and as soon as i moved out (after setting up a consent to let with the bank) I changed the mortgage to interest-only, but the house I bought with my husband is on a repayment. This is mainly done for taxes: you can deduct the interest you pay on a rental property but not on your own residence. So put the £80 you overpay on the rental into your own mortgage from now on for starters. (Your own house is on a higher interest rate as well, so even if you don't pay tax on your rented property, it makes sense to reduce the borrowed amount that you pay most interest on (i.e. your home). Don't be tempted to pay off the smaller amount first: you have to look at the interest rate of a loan, not the term or the amount left to really save money. It's called snowballing: it's a big thing on the Debt Free Wannabe board.)

Jonbvn

Old_No.7 wrote: »

It's called snowballing: it's a big thing on the Debt Free Wannabe board.)

:eek: :eek: :eek: :eek: :cool:

:rotfl: :rotfl:
(Don't do a google image search if you are easily offended!)

kernowmaid_2

Thanks for your replies .... I've not really had chance to look at the internet for the past few days - I will read your comments later today and then come back.

Cheers