Pay off mortgage or not?
Discussion
i am a regular contributor to PH, but for this question have re-registered to keep some privacy ,as i am going to talk about very specific personal circumstances.
my question is whether i should pay off my mortgage or not.
details as follows.
i am 35, own a house valued at £800k, mortgage of £300k, costing me £1400 per month interest only.
i have 3 houses that i rent out that are fully paid off that gives me a take home of £1000 per month (ie after all expenses, tax, agency fees etc). these have been rented out for around 10 years so this figure is accurate.
if i were to sell these houses, after tax etc etc, i would be left with about £340k.
so the question is, sell and pay off, or not? business head says don't pay off, whereas the heart says pay off.
i would welcome all comments / ideas to help me make up my mind.
my question is whether i should pay off my mortgage or not.
details as follows.
i am 35, own a house valued at £800k, mortgage of £300k, costing me £1400 per month interest only.
i have 3 houses that i rent out that are fully paid off that gives me a take home of £1000 per month (ie after all expenses, tax, agency fees etc). these have been rented out for around 10 years so this figure is accurate.
if i were to sell these houses, after tax etc etc, i would be left with about £340k.
so the question is, sell and pay off, or not? business head says don't pay off, whereas the heart says pay off.
i would welcome all comments / ideas to help me make up my mind.
Mortgage said:
goochie said:
Dont sell. Its your pension 
assuming all things stay relative, it's not much of a pension... £1k per month? think i can do better than that... i'm working on building a separate pension pot of around £1.4m
Yes but the rent is not necessarily your pension, long term property growth will be (or I should say, might be), sell em off slowly later and take the profits out. You are gearing up your overall portfolio and letting someone else pay the mortgages.
Oh and what all the others said, get the investment flats mortgaged up and use them to pay of your personal mortgage, madness paying full tax on the rental income with nothing to offset, yet still having personal lending.
point to mention that i didn't make clear, and that is that the rental properties are all in my ltd company name. taking money out is therefore not so straightforward. ie it would have to be as a dividend, for which there are obviously tax implications.
how does this point effect your opinions
(and thanks by the way for all your very useful comments)
how does this point effect your opinions
(and thanks by the way for all your very useful comments)
Scratch my suggestions then. You scuppered yourself from a CGT manipulation point of view by having the buy to lets in the ownership of a limited company.
The company will pay CGT at Corporation Tax rates on any gains when these properties are sold and will not be able to make use of the annual Capital Gains Allowance as these are only available to individuals. You, of course, will pay Income Tax when you extract the proceeds on the sale of the properties from the company.
If you attempted to move into a limited company owned property, you would trigger an Income Tax Benefit in Kind charge, unless you paid the company a commercially realistic rent.
The company will pay CGT at Corporation Tax rates on any gains when these properties are sold and will not be able to make use of the annual Capital Gains Allowance as these are only available to individuals. You, of course, will pay Income Tax when you extract the proceeds on the sale of the properties from the company.
If you attempted to move into a limited company owned property, you would trigger an Income Tax Benefit in Kind charge, unless you paid the company a commercially realistic rent.
Eric Mc said:
Sell your home. No CGT. Pay off mortgage.
Move into one of your buy to lets. Sell in a few years - this will reduce the CGT on that sale and possibly even eliminate it.
Move into one of your buy to lets. Sell in a few years - this will reduce the CGT on that sale and possibly even eliminate it.
Move from a £800,000.00 property into a £100,000.00 property can't see that happening somehow. Sometimes paying less tax isn't the whole meaning of life.
But Eric can he increase debt on the rented properties to save tax? Thought only the original debt when the property was purchased could be offset against the rental income.
Interest incurred in purchasing the rented properties can be offset against the rental income. Additional borrowing using the rented properties as collateral would not of itself create a further interest offest ability - unless of course, the additional borrowings was somehow related to the rented property directly - such as borrowings for an extension or major improvements etc.
Mortgage said:
goochie said:
Dont sell. Its your pension
assuming all things stay relative, it's not much of a pension... £1k per month? think i can do better than that... i'm working on building a separate pension pot of around £1.4m
But it won't be a £1,000pcm rent on each property in 15 years time, it'll be more, ina ccordance with the prevailing market rate. And that'll be 3 times over, for 3 rented properties, yet your mortgages will be fixed at the rate they are now, so it's win, win, and the return will become better, not to mention the capital growth...
I am suprised that someone who has an £800k house a projected pension pot of £1.4 million and is still only 35, needs advise on offsetting his mortgage. To build up such an impressive position you cant be thick, and must surely have financial advisors who would have spotted this (or should have done) years ago.
I don't think there's a right or wrong answer - it's a matter of personal judgement. I own a fair few properties and the questions I'd ask myself would include:
Are house prices likely to rise, fall or stay the way they are?
Are interest rates likely to increase?
Do you want to be debt free?
The above two are a matter of commercial judgement. I'm of the view that house prices will rise, but not by much. I'm also of the view that interest rates will increase. So as a commercial judgement I'd be inclined to sell and pay off the mortgage.
Regarding the issue of being debt free, personally I have an aversion to borrowing money. As such, I like to pay off all debts ASAP. But that's a personal thing and it's not necessarily a commercial judgment - more of an emotional one.
As with all these type of questions - it's your decision!
Are house prices likely to rise, fall or stay the way they are?
Are interest rates likely to increase?
Do you want to be debt free?
The above two are a matter of commercial judgement. I'm of the view that house prices will rise, but not by much. I'm also of the view that interest rates will increase. So as a commercial judgement I'd be inclined to sell and pay off the mortgage.
Regarding the issue of being debt free, personally I have an aversion to borrowing money. As such, I like to pay off all debts ASAP. But that's a personal thing and it's not necessarily a commercial judgment - more of an emotional one.
As with all these type of questions - it's your decision!
Do some sums.
How much do you expect each of your btl properties to appreciate by the time you retire? (which I think will be far earlier than 65 in your case)
If you sold all your properties and paid off the mortgage, would having no mortgage allow you to save more (+ interets) than your btl properties would have appretiated, by the same time. If so, you may as well pay off your mortgage and save.
But lets not forget you a PH'er. You must have some really nice cars since a thread a few months ago showed many members here don't see anything wrong with spending £100k on a car when they live in a £250k house that's mortgaged.
I use www.taxationweb.co.uk/forum for any tax concerns, although there are some members here that know their stuff too.
How much do you expect each of your btl properties to appreciate by the time you retire? (which I think will be far earlier than 65 in your case)
If you sold all your properties and paid off the mortgage, would having no mortgage allow you to save more (+ interets) than your btl properties would have appretiated, by the same time. If so, you may as well pay off your mortgage and save.
But lets not forget you a PH'er. You must have some really nice cars since a thread a few months ago showed many members here don't see anything wrong with spending £100k on a car when they live in a £250k house that's mortgaged.
I use www.taxationweb.co.uk/forum for any tax concerns, although there are some members here that know their stuff too.
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