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What to pay off - and when?
Options
Celepie
Posts: 134 Forumite
Apologies if this isn't the correct forum for this.
I currently have three properties - property 1 has no mortgage and is worth about £70,000 (technically it's worth more, but I am giving around £50k of it to my mum); property 2 is rented out with a mortgage of £89,000 (property is worth around £130,000); and property 3 is the home my partner and I live in, which is worth £245,000 and has a mortgage of £190,000.
I'm planning to sell property 1 this year and will have around £70k from that plus around £20k from an inheritance.
My initial thoughts are to pay off property 2 so that there's no mortgage. I'd prefer not to be renting it out at all and be able to sell it, but the property market is stagnant and there are already three or four similar properties on the market in the street that have been on for months. Certainly I don't want to be renting it out for more than a couple of years if at all possible. Paying it off would mean there's about £535 rental income a month before tax (I'm self employed and all income, business or rental, is declared to HMRC). This income would cover about 75% of the mortgage on property 3. When I do sell it, I could then put the £130k into property 3 and leave us with a small mortgage that we should be able to pay off within 10 years.
Alternatively, I could ignore property 2 - the rental income pays for the repayment mortgage and ongoing maintenance - and put the £90k directly into property 3 - the home we live in.
Both property 2 and property 3 have recently been mortgaged/remortgaged (we just bought property 3) onto three-year deals with pretty similar interest rates, so we have early repayment charges to consider. For property 2, this would be around £2500. For property 3, it would be more. We can pay 10% a year without penalty. The third option, therefore, would be to do something else with the bulk of the money for three years until we can put it into property 2 or property 3 with no charges, but I'm not sure what that something else would be!
Does anyone have any thoughts? I suspect I might need to speak to a financial advisor.
I currently have three properties - property 1 has no mortgage and is worth about £70,000 (technically it's worth more, but I am giving around £50k of it to my mum); property 2 is rented out with a mortgage of £89,000 (property is worth around £130,000); and property 3 is the home my partner and I live in, which is worth £245,000 and has a mortgage of £190,000.
I'm planning to sell property 1 this year and will have around £70k from that plus around £20k from an inheritance.
My initial thoughts are to pay off property 2 so that there's no mortgage. I'd prefer not to be renting it out at all and be able to sell it, but the property market is stagnant and there are already three or four similar properties on the market in the street that have been on for months. Certainly I don't want to be renting it out for more than a couple of years if at all possible. Paying it off would mean there's about £535 rental income a month before tax (I'm self employed and all income, business or rental, is declared to HMRC). This income would cover about 75% of the mortgage on property 3. When I do sell it, I could then put the £130k into property 3 and leave us with a small mortgage that we should be able to pay off within 10 years.
Alternatively, I could ignore property 2 - the rental income pays for the repayment mortgage and ongoing maintenance - and put the £90k directly into property 3 - the home we live in.
Both property 2 and property 3 have recently been mortgaged/remortgaged (we just bought property 3) onto three-year deals with pretty similar interest rates, so we have early repayment charges to consider. For property 2, this would be around £2500. For property 3, it would be more. We can pay 10% a year without penalty. The third option, therefore, would be to do something else with the bulk of the money for three years until we can put it into property 2 or property 3 with no charges, but I'm not sure what that something else would be!
Does anyone have any thoughts? I suspect I might need to speak to a financial advisor.
0
Comments
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The interest you pay on the mortgage on property 2 is tax deductible. In the short term therefore perhaps better to pay down the mortgage on property 3.
When you come to sell property 2. You are going to have a void period for a period of time, i.e. no rental income to offset the costs incurred. Though as long as you let the property the mortgage debt will reduce (providing interest rates remain favourable).0 -
Thank you - I hadn't even considered the fact the interest on property 2's mortgage is tax deductible in my musings!0
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Yes my thought same as Thrugelmir, pay off your homes mortgage because the interest on the rental house is tax deductible to some level depending on your income, so financially paying down the rental would be the worse thing to do and it’s also hard to see any other benefits.0
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You may have Capital gains tax to pay.
Why not take a long term view and may off the 10% allowed each year
Maintain the rental properties and look after your tenants ( who will I hope pay the rent )
Buying and selling it very expensive and now has 3% extra stamp duty.0 -
What are the interest rates on the loans (mortgages)? Tax deductibility is all well and good but if you still end up paying more overall cash (on interest) out at the end of the day [by directing payments to the residential mortgage] then it hasn't saved you anything.0
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if structured properly you can get interest relief on debt up to the full value of the property when first let.
it does not matter what property secures the debt
often residential rates are lower rate so best to use those properties to secure the borrowings .0
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