Rental Property- Interest Only or Repayment Mortgage.
Discussion
Hi,
I've asked advice on here previously and recently emailed Sarnie about my situation.
I'm in the forces so move around a lot and decided to take my family with me. We have rented our home out for the last 3 years with the first 2 at 3.49% fixed (residential) and have been on the SMR for the last year at 3.99%. My lender usually charges an extra 1.5% but have not added this due to me being in HM Forces.
Recently we have dipped below 75% LTV so I've had a look what is out there as I'd like less costs and maybe a fixed rate. Even though we are renting it out I would still like the capital paid off as time goes on hence staying with a repayment. However I was recently contacted by a mortgage broker who advised me to move to an interest only. This was his basic maths assuming a £1000 repayment mortgage and equal rental income:
Repayment: £1000 - £700 int = £300 capital payment
IO: £1000 - £500 int = £500 to pay of capital/invest/save
What appeals to me is that I believe I would pay less interest and have more from our rental income to pay the capital off this way. I would also appreciate more "just in case" funds for the unexpected bills relating to the property and periods where it may be empty wouldn't affect us as much.
He also said it would also be better from a tax perspective but I'm assuming I'd pay more on the extra surplus. I am also concerned that currently the interest payment will reduce over the term but unsure what would happen on IO.
To throw another spanner in the works. A colleague also has a new mortgage with the same lender and is certain that they allowed him onto a decent residential fixed rate without extra charge as he is also forces. It's their only property and they intend for it to be their eventual main residence which is the same as my situation. I quite fancy their 2.84% 3 year fixed with no fee so will be chatting to my lender on Monday. This way I would avoid the survey, admin and legal fees.
The interest only still sounds appealing but I'm pretty new to this so any advice would be gratefully received!
I've asked advice on here previously and recently emailed Sarnie about my situation.
I'm in the forces so move around a lot and decided to take my family with me. We have rented our home out for the last 3 years with the first 2 at 3.49% fixed (residential) and have been on the SMR for the last year at 3.99%. My lender usually charges an extra 1.5% but have not added this due to me being in HM Forces.
Recently we have dipped below 75% LTV so I've had a look what is out there as I'd like less costs and maybe a fixed rate. Even though we are renting it out I would still like the capital paid off as time goes on hence staying with a repayment. However I was recently contacted by a mortgage broker who advised me to move to an interest only. This was his basic maths assuming a £1000 repayment mortgage and equal rental income:
Repayment: £1000 - £700 int = £300 capital payment
IO: £1000 - £500 int = £500 to pay of capital/invest/save
What appeals to me is that I believe I would pay less interest and have more from our rental income to pay the capital off this way. I would also appreciate more "just in case" funds for the unexpected bills relating to the property and periods where it may be empty wouldn't affect us as much.
He also said it would also be better from a tax perspective but I'm assuming I'd pay more on the extra surplus. I am also concerned that currently the interest payment will reduce over the term but unsure what would happen on IO.
To throw another spanner in the works. A colleague also has a new mortgage with the same lender and is certain that they allowed him onto a decent residential fixed rate without extra charge as he is also forces. It's their only property and they intend for it to be their eventual main residence which is the same as my situation. I quite fancy their 2.84% 3 year fixed with no fee so will be chatting to my lender on Monday. This way I would avoid the survey, admin and legal fees.
The interest only still sounds appealing but I'm pretty new to this so any advice would be gratefully received!
Edited by dai1983 on Saturday 25th January 21:53
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