Interest Only, Repayment, or Mortgage Free?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Interest Only, Repayment, or Mortgage Free?

    Hi guys,

    I've got a question – I'm looking at buying a house – its £90k
    The deposit will be £27k – a 30% deposit. So the total mortgage will be £63k.

    I've tried to work out which mortgage option would be best – To keep it simple, I’ve imagined that I could get the same rates for 25 years (like If I kept re-mortgaging, and kept getting the same monthly repayments), I’ve also not included the fees/solicitor costs,etc.

    Rent on the property will be £450 per month. (£135,000.00 over 25 years)

    So –

    Interest Only...
    • Monthly repayment - £191
    • After 25 years - £57,300.00 + Initial loan amount (£63k) = £120,300.00
    • Money from rent after 25 years – £14,700.00


    Repayment Mortgage...
    • Monthly repayment - £342
    • After 25 years – £102,600.00 (Initial loan paid off)
    • Money from rent after 25 years – £32,400.00


    No mortgage...
    • Full rent is profit? Full £135,000.00???



    As you can see – this may be too simple – But to me - Repayment is the clear winner. It's more each month - but saves £20k in the long run.
    What i cannot understand is -- all the mortgage advisors i have spoke to have recommeneded Interest only.

    Could someone please help! Should i be choosing Intrest only? Or am i right in a repayment mortgage? If i can afford it - is no mortgage the best? What about tax? So confused!!!



    Thanks for reading – and thanks for any help!

    #2
    If it's buy to let they are advising interest only on ,Its so you get more cash flow now.If you have the cash to buy outright do it !

    Comment


      #3
      Using your model figures , here my calculation assuming your tax rate at 20%:

      1. Interest Only Mortgage ( 27000 deposit )-

      - 25 years payment at 191 per month = 57,300 total interest paid

      - surplus from 25 years rental income = 135000 - 57300 = 77,700

      - tax paid on surplus at 20% = 15,540

      = total income from rents = 135000-57300-15540 = 62,160

      Capital Account = Property Value at 25 years - 63000 loan


      2. Repayment Mortgage ( 27000 deposit )-

      Loan interest over 25 years assumed 50% of 57300 = 28,650

      -surplus from 25 years rent = 135000- 28650 = 106350

      - tax paid on surplus at 20% = 21,270

      - total income from rents = 135000 -102600 - 21270 = 11,130

      Capital Account = Property Value at 25 years.



      3. Purchase Without Mortgage Loan ( 90000 paid )

      - total income from 25 years rent = 135000- 20% tax = 108,000

      Capital Account = Property Vaue at 25 years.

      Comment


        #4
        In terms of your income calculations you don't appear to have considered the value of income from an increase in property prices. If you take that into consideration the you might easily rule out option 3 (mortgage free).

        Over the past 25 years UK property prices have risen by a factor of about 4.6.
        If you use your 90k to buy the property outright and the market performs similarly over the next 25yrs your original investment will be worth £414k. A profit of £324,000.

        But instead you could split your 90K as deposits across three properties and borrow the balance. At the end of the same period you would have an investment worth over £1,200K. A profit of £1,110,000.

        Obviously, no one knows how the market is expected to perform over the next 25 years so use the historic figure as a guide only.
        Assume I know nothing.

        Comment

        Latest Activity

        Collapse

        • Reply to Limited company vs landlord
          by L4NDLORD
          There are a lot of merits to a landlord operating as a limited company. This is particularly so in an era of higher stamp duty land tax. Much simpler to transfer a share than a property...There is a much lower stamp duty on shares in a companythat real property; plus its much simpler to give a few away...
          18-01-2022, 05:19 AM
        • Limited company vs landlord
          by Smilerkel86
          Recently reading more and more posts on here and coming across quite a few landlords who have made a limited company.
          What made you do this?
          Are there financial benefits?
          Tax benefits?
          Is it something I should look at?
          I have 3 buy to let properties, 2 are mortgaged....
          04-01-2022, 20:46 PM
        • Reply to Limited company vs landlord
          by SouthernDave
          Depends if your going to run your property empire like a proper business or not. Also consider your overall tax position, long term goals and tax planning. Each persons individual situation makes doing BTL through ltd company worthwhile or not....
          17-01-2022, 21:35 PM
        • Reply to Limited company vs landlord
          by jpucng62
          I think the tax advantage of being able to take dividends instead of income has been reduced recently....
          17-01-2022, 13:08 PM
        • Reply to Limited company vs landlord
          by Gordon999
          The Times Newspaper ( Sat 13 Jan 2022,) Money Section page 62 &63 reported on BTL owners putting properties into a company..

          The paper showed there are 228,743 BTL limited companies by end of 2021.

          A company director can take £2000 in tax free dividends .
          ...
          17-01-2022, 10:00 AM
        • Mortgage News
          by loanarranger
          The following article has appeared in one of the Mortgage Trade journals reporting on views expressed by the Association of Mortgage Intermediaries an influential trade body within the mortgage industry.

          "Mortgage rates are likely to rise in the first quarter of 2016 as lenders look...
          23-12-2015, 19:43 PM
        • Reply to Mortgage News
          by jpkeates
          I suspect the reverse will be true, to be honest.
          I suspect that many (most?) landlords don't have any idea of most of the recent changes in regulations for landlords - the people who contribute to this forum are not representative of landlords in general.

          The awareness of landlords...
          14-01-2022, 09:54 AM
        • Reply to Mortgage News
          by loanarranger
          Thank you both for your constructive responses, it is evident from your views particularly as you are seasoned professionals that a significant number of less well informed investors will possibly take fright at the ramifications of the proposed changes. Although I am an investor as well as a specialist...
          13-01-2022, 22:53 PM
        • Reply to Mortgage News
          by jpkeates
          The Minimum Energy Performance of Buildings Bill which is only a start point set the limit at £20,000.
          In discussions, there was a view that that figure might have to be reduced to £10,000.

          That was a private members bill.
          But it was the work of the MP who was murdered and...
          13-01-2022, 16:30 PM
        • Reply to Mortgage News
          by boletus
          Do you think that cap level is likely? The consequences are quite obvious.

          (On a personal note, this would be a win for me as all my rentals would quite easily get to C and it would drive out the competition. Plus I'd upgrade my F ppr to a bigger F ppr.)...
          13-01-2022, 16:14 PM
        Working...
        X