Interest Only Mortgages
Today I'd like to talk to you about what's going to be in the next few days, weeks and months an important topic;
Do you pay interest only on your buy to let property?
Or do you pay it off as you go?
There's no right or wrong answer to this one, but from an investment point of view there's maybe one answer more right than the other.
At the start of your journey as an investor in property or investor in anything, you need to have a plan. Now the plan is where you want to be, how you're gonna get there and how you're gonna afford it - that's a simple plan right.
So your plan when you set out was probably to have as many properties as you can afford, well if you are paying off your mortgage as you go along, from the income from your property, then you're not going to have enough left out of it each month, unless you've got a big deposit or bank balance to buy another one.
So what do you do?
Some of you will say well you don't get tax relief on your interest anymore.
It's true.
But if you set up your vision, your plan properly enough and you have decided you want more than one, two, three, four or five properties and you're already close to a high income for tax. Then you may want to start looking at either a partnership with your wife, your spouse, your friend or something to dilute some of the tax, or you may want to after talking to an accountant start a limited company. Because that then gets rid of tax on your income from the property.
My own personal view is I don't pay my mortgages off as I go along, I use all the spare cash I have for other investments. So the more investments I've got, the more money I've got coming in.
I look at it as if I am never going to own those properties. The best it will ever be is I'll pass it on to my family, my sons, daughters, granddaughters and grandsons. Or at some point I may liquidate them and live off the income from that in my late retirement life.
So that is my viewpoint. My own personal view is I will worry about that later on in life.
The interest rates are going to go up at some point in the future, so if you are committed to a repayment mortgage, will you have enough money coming in from that property to meet the demands for your repayment mortgage?
Or will you have to put your hand in your pocket?
I've always believed personally, I would rather pay the interest and if I want to pay some off my mortgage I will do a one-off payment at the end of the year, after working out what I've got left.
In other words, I'd just use spare cash, but that's my opinion. You may have a different one.
Don't forget it's your plan.
It’s your journey.
I know my journey, I know my plan, all I can tell you and give you is information to make sure you know what your journey is and your plan.
David Muir
Connect Properties Limited
07776117774