Interest-only mortgage on BTL - should I overpay?

[Seany88]

I've been trying to work out what's the best route to take with this. I've mulled it over for a while, and I guess i'm just after assurance that it is a relatively sound idea.

Scenario is I bought a house to let out but am currently living in it. It will be let out when I move out (possibly next year or so). I bought it as a long-term investment and probably intend to keep it forever, hopefully. I'm currently on a 2yr interest-only fix.

So should I overpay? I personally don't think so, as due to inflation, 'eventual' rising house prices etc then its better that I don't tie up my money in 'equity' in the house for reasons of CGT should I ever sell. In addition, assuming inflation continues then hopefully in 25yrs the outstanding balance on the mortgage will be much smaller in future money terms.

Finally in this way I won't have as much profit liable to pay tax on, as I understand that the interest on a mortgage is an allowance expense.

Thanks in advance for the replies

[Seany88]

JamieBeeston said:

haworthlloyd1 said:

you can always overpay an interest only mortgage but not in the fixed term in most cases

Like I say overpay to what? a repayment mortgage? or just to 'build up' a credit against your annual balance?

I believe I have an arrangement whereby I can overpay up to 10% a year even within the fixed term without penalty.

Rent is currently just making even, but next year I should be in profit as rent is currently lower than it should be.

I am currently investing most of my earned income and don't mind risk while I am young. I realise I am currently not making the most of my 'capital' at the moment as I could probably be earning more in a high interest account. I am also saving up to buy a business in the future. So i guess that it is a good decision for me, as I have fair disposable income that could be channelled to the house for empty periods etc.

Plus I wanna make the big dosh!

[JamieBeeston]

Seany88 said:

Plus I wanna make the big dosh!

Didn't we all when young.. the secret is to still want to when you get older

J

[JonRB]

The interest on a rentable property that is not your main residence is tax-deductible.

Therefore if you have a domestic mortgage and a BTL mortgage you are far better paying off the main mortgage first as otherwise you're reducing your tax relief in effect.

When the main mortgage is paid off then look at paying off your BTL.

That's just a layman's opinion though - this doesn't constitute financial advice. Your home may be at risk if you do not maintain payments. It's only funny until you have someone's eye out. Objects may appear closer than they are. May contain nuts. E&OE.

[Wings]

My BTL mortgage is an offset interest only mortgage, so since I can draw down against overpayments, I use the mortgage as a form of savings.

[Seany88]

JamieBeeston said:

Seany88 said:

Plus I wanna make the big dosh!

Didn't we all when young.. the secret is to still want to when you get older

J

Probably not, hence do it while i'm young and get it out the way sharpish!

[emicen]

Wings said:

My BTL mortgage is an offset interest only mortgage, so since I can draw down against overpayments, I use the mortgage as a form of savings.

That would be my suggestion as well and its something I'm looking at just now.

The bonus is really the ease with which you can draw down savings/overpayments. Ultimately, its a very high interest rate savings account.

[Seany88]

emicen said:

Wings said:

My BTL mortgage is an offset interest only mortgage, so since I can draw down against overpayments, I use the mortgage as a form of savings.

That would be my suggestion as well and its something I'm looking at just now.

The bonus is really the ease with which you can draw down savings/overpayments. Ultimately, its a very high interest rate savings account.

But when happens with the 'books' for the BTL then? The profit will vary according to the amount you've offset and therefore also potentially increase your tax liability?

[Wings]

Seany88 said:

emicen said:

Wings said:

My BTL mortgage is an offset interest only mortgage, so since I can draw down against overpayments, I use the mortgage as a form of savings.

That would be my suggestion as well and its something I'm looking at just now.

The bonus is really the ease with which you can draw down savings/overpayments. Ultimately, its a very high interest rate savings account.

But when happens with the 'books' for the BTL then? The profit will vary according to the amount you've offset and therefore also potentially increase your tax liability?

Money is only useful if used as a tool, so unless you have a better use for your monies, you are best to reduce your BTL mortgage.