Investment vehicle for an interest-only mortgage ?
Discussion
timmy30 said:
How about a BTL portfolio.
Not a bad idea... i have interest only on my main place & the repayment vehicle is a buy to let prop. Its on a repayment with 18 years left to run, the current value is nearly enough to repay the main residence mortgage now so as house prices will steadily rise (not guaranteed of course but extremely likely over 18 years), the mortgage WILL have reduced, when the times right, sell it, pay the cap gains & repay main mortgage. (but i think about a Diablo every day..
) Alot of people do not use a repayment vehicle at all as they intend to re-mortgage and switch to repayment later down the line. This can be risky for high loan to value cases as its all dependent on your place going up, if its a fairly small mortgage then its alot safer.
Most mortgages are flexable & allow 10% over payments every year. Instead of taking an investment policy which the returns are not guaranteed try making regular overpayments when you can, this then guarantees a reduction of the mortgage & your in control of it.
maxed said:
If it's ok to ask splodge s4, what/which type of repayment vehicle are you using please ?
I think what he's doing is using the second place to pay off the first place.
Lets say you live in a £150k house, you buy a 2nd £200k house that you rent out, the tenants pay off the interest and capital on the 2nd place via the rental.
At the end of the mortgage on house 1, you sell house 2 ( which has a matching term mortgage ) you pay your cap gain tax, on house 2, and use the remainder to pay off the capital loan on house 1.
The risks are void periods in the rental on place 2, interest rate rises ( you can fix though ), maintenance costs of place 2, and of course house prices falling. Price falls would be a pain because the amount you borrowed is fixed whereas the ultimate capital value of the houses fluctuates.
Cheers Tim... i got a bit distracted in translation but now makes sense.
Always my prefered option to do repayment mortgages for this reason.
Currently, have a good interest-only mortgage offer on the desk.
Feel i should way up the choices and exam if buying an investment to cover the original borrowing is a sensible way forward in the current climate.
Always my prefered option to do repayment mortgages for this reason.
Currently, have a good interest-only mortgage offer on the desk.
Feel i should way up the choices and exam if buying an investment to cover the original borrowing is a sensible way forward in the current climate.
timmy30 said:
I think what he's doing is using the second place to pay off the first place.
Yup thats it, but the let property used to be my main residence so it was never purchased as a buy to let. Its actually costs me £100 from my own pocket, mortgage is £550 (over 18 years) and the rent is £450 so for my £100 per month the place will be paid off.
A few down sides have already been explained about this type of set up, others include the potential hassels of being a landlord, problems with the property etc, you got to be up for being a landlord really.
I'd really just recommend overpaying on your existing mortgage.
timmy30 said:
I think what he's doing is using the second place to pay off the first place.
Lets say you live in a £150k house, you buy a 2nd £200k house that you rent out, the tenants pay off the interest and capital on the 2nd place via the rental.
At the end of the mortgage on house 1, you sell house 2 ( which has a matching term mortgage ) you pay your cap gain tax, on house 2, and use the remainder to pay off the capital loan on house 1.
The risks are void periods in the rental on place 2, interest rate rises ( you can fix though ), maintenance costs of place 2, and of course house prices falling. Price falls would be a pain because the amount you borrowed is fixed whereas the ultimate capital value of the houses fluctuates.
To be honest, the only times I see rental income that exceed the interest AND capital on a BTL mortgage are on very cheap properties further north, or HMO's / Student houses. Apart from those cases it's more common for the LTV to have to be restricted due to the rental assessment.
splodge s4 said:
A few down sides have already been explained about this type of set up, others include the potential hassels of being a landlord, problems with the property etc, you got to be up for being a landlord really.
Like a client that came back off holiday to find the entire house had been ripped out, filled with 1ft of manuare and top soil and had some strange fondy plants growing under UV lamps
Davi said:
A few down sides have already been explained about this type of set up, others include the potential hassels of being a landlord, problems with the property etc, you got to be up for being a landlord really.
Like a client that came back off holiday to find the entire house had been ripped out, filled with 1ft of manuare and top soil and had some strange fondy plants growing under UV lamps
Never had a problem with tenants. They seem to stay & keep the property imaculate. It always seems to me you hear the small percentage of horror stories but not the success. Media for yer.
Actually have a queue of people who want to rent from me and i never have to advertise.
Got "caught" by one unknown female last week as i was going into an estate agent. She had followed me in to find out if i was buying a property and if she could have 1st refusal on renting it.
maxed said:
Never had a problem with tenants. They seem to stay & keep the property imaculate. It always seems to me you hear the small percentage of horror stories but not the success. Media for yer.
Actually have a queue of people who want to rent from me and i never have to advertise.
Got "caught" by one unknown female last week as i was going into an estate agent. She had followed me in to find out if i was buying a property and if she could have 1st refusal on renting it.
You are doing well then - true you do only tend to hear the horror stories, I have hundreds of clients on the books who have never had a problem, but equally there are many that do have big problems. I think the worst mistakes made by new landlords are those who dont (as in all things) research enough. If you are not going to manage the property yourself, then you need to get references for the agents that you are looking to use - dont go on price alone. If you are going to manage it yourself then you have a much better handle on the situation, and can vet proposed tenants yourself.
Serious answer is make sure you keep the property well maintained & in a desirable/convenient location.
Plus, get a good reputation as a provider of good quality rental properties.
Then people will approach you direct. Even have people ringing the door bell on the off chance.
This current purchase is already the 2nd this year due to being approached by a guy for a rental place. He did some work for me late last year & called round out the blue last month needing a place to rent. So, i'm buying to "house" him knowing it will be well looked after & he wants it for @ least a year!
I just can't keep up
Plus, get a good reputation as a provider of good quality rental properties.
Then people will approach you direct. Even have people ringing the door bell on the off chance.
This current purchase is already the 2nd this year due to being approached by a guy for a rental place. He did some work for me late last year & called round out the blue last month needing a place to rent. So, i'm buying to "house" him knowing it will be well looked after & he wants it for @ least a year!
I just can't keep up
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