Jump to content

Remortgage to release funds - repayment or interest only


Recommended Posts

Hi,

Planning to remortgage my residential property and release 400k in equity to build a BTL portfolio.

Need advice on whether to do a repayment mortgage on that 400k or interest only.

I'm primarily looking for cash flow to further purchase additional properties. Doing a repayment on the 400k will massively eat into the net profit of the BTL income.

Does it make sense to do repayment only? Anyone been in similar situations, what are the pros and cons.

Thanks

Link to post

Assuming you dont have £400k in cash, ISA's or other funds, you will need to have at least 40% equity, £300k equity and/or earn over £75k per year to do a residential interest only mortgage. The only alternative is to do interest only and use the equity in your portfolio, but then id assume you would release that £400k from the BTL's rather than your own home.

It might be a moot point anyway?

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

Link to post

Hi Stuart,

Thanks for your response. The residential property is valued at £900k. Also forgot to mention the property is mortgage free.

My mortgage adviser says I will be able to get it on interest only. 

I wanted to know if doing interest only on the residential mortgage is a good option. My thinking is it free's up a lot of cash flow to re-invest into other properties.

If I go for repayment it slightly defeats the purpose of releasing the equity in the first place, if all I'm doing is then using quite a lot of the profits from the BTL to pay back the repayment mortgage on the residential property. 

If interest only, then from my calculations, 1 property's net profit after tax will clear the interest only payment on the residential mortgage.

However if I go for repayment it will only be after the 4th property that I will be producing cash flow. The 1st 3 properties will simply pay off for the repayment on the residential! Whereas with interest only, after 1 I will  be cash flow positive and be able to use the surplus to fund more purchase, invest in other opportunities.

Link to post

I mean ultimately a repayment mortgage will leave you wealthier because those repayments reduce the interest over time. Your equity in the home will grow faster on repayment than it would on interest only. I guess its akin to the age old question of capital appreciation versus cashflow. If the latter is the motivation then interest only gives you that at a greater overall cost and risk.

With my mortgage advisor hat on id always recommend repayment first over IO because from a compliance standpoint its considered much riskier and i have to be mindful of that. As a business owner, speculate to accumulate. You need to keep costs low at first to invest in things that bring revenue, then use that extra revenue to reduce costs later once you meet your goals. If you put £400k into other property, your balance sheet is still just as healthy.

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

Link to post

Thanks Stuart, that seems like sound advice! 

We are still young at the moment, so appetite for risk is there. Based on your advice maybe we can consider being interest only for 5 years and then when it comes time to remortgage we can flip to repayment. So I guess use the income to grow reasonably quickly in the 1st 5 years and then once we have built up a sufficient portfolio ease off and maintain at that level and start repayment.

Cheers!

Link to post

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...