UK Landlord Forum / Life

i am a newbie property investor and new to this forum as well.

we bought our BTL property a few months back on an interest only mortgage. we don't intend to build a chain of properties and this purchase is a one time investment.

we are wondering when and how do other landlords pay off such a mortgage?

My mortgages were interest only.Prices were rising rapidly,so I was able to draw down to buy other properties.I have never touched any of the rental income over 20 years,and I kept a separate investment account to save profits after tax.Around 10,000 was added from my own income,and used to gradually pay off mortgages.It really is something to go into for the long haul,like buying shares.The people I know who have come unstuck have regarded the rental income as a piggy bank, to pay for expensive holidays and cars.I would not have had the discipline when I was younger,it does take time to reap any rewards.I would have paid off the remaining mortgage this year,but had to buy the freeholds of 3 studios,which has wiped out the savings in the BTL account.I think you are wise to stick at one property in the current climate.Good Luck!

It has long remained my view that IO mortgages are for Landlords who like / prefer to sail closer to the wind and highly leverage themselves. Not everyone, of course. I only do Repayment mortgages myself. As to the how and when... well, you can pay by phoning your Lender, I'm sure... or even on-line if you can see the account. Any little you pay off now will help you out each and every month going forward, of course... so it seems a wise thing to do - it's then like a repayment mortgage but with total flexibility on your side, i.e. no minimum payment. Alternatively, you can let that IO account sit as it is for years and years and save up the capital for repaying the (not-increasing) capital at the end... but the IO mortgage %age would be higher than you'd expect any savings %age would be... at least normally.

Broadly speaking, you want to be paying it down as soon as possible. Lets say your mortgage is 4% and in your first year, your property makes £5,000 after fees, costs, tax and interest. You can either pay it off your mortgage or hang on to it for a bit.

If you don't pay it off the mortgage, that five grand is going to cost you £200 a year in interest. The question is whether you think it's worth £200 to "rent" that five grand.

If you're using it to pay of some other borrowings that carry a 5%+ interest charge, then yes, probably.

If you're keeping it as a buffer in case the boiler goes pop or your tenant stops paying rent, or to build up a little fund for repairs/refurb at the end of the tenancy then perhaps.

If you're going to bung it in a savings account where it will earn fifty quid a year then probably not!

I work on the basis that, as long as I've got access to enough reasonably-priced short-term liquidity, there's no point hanging on to cash that could be used to pay down an interest-bearing debt.

If you are dead sure this is a one off investment and have no need for capital for another property then You should pay it off ASAP provided you don’t have other debts at higher interest rates.

I’m a big fan of interest only as the commitment payments are much lower which leaves the flex in your hand especially useful when you have only one property (which might end up in a void period).  However this is provided you aren’t daft with the income. 

Check your mortgage terms as likely you will be able to overpay up to 10% of the mortgage even in the ERC period.  Use that facility once you have built up a small contingency fund (as suggest by Simon) - it also makes it more acceptable to then ask for a payment holiday when you really need to.

Whilst I have never done this - there is an argument for spanking at least some of the income on a nice holiday  - otherwise what’s the point of earning this money - you may never live to see the day the mortgage is paid off - just to offer a different view - to reiterate I am too conservative to have taken this view but now looking back over 20 years maybe a balance needs to be considered.

When I started this gig, I did it partially because I didn't want to sell a home I'd lived in for 13 years and partially because I was reviewing my pension (20 years in the future even today) and realised it was going to be pretty crap, despite my employer being generous and despite me putting in extra contributions. I realised that if you even had 1 house mortgage-free it would trounce the pension income (assuming little to no maintenance - at the time I had rose-coloured spectacles on). As time progressed I found I enjoyed the extra work involved and I actually enjoy giving someone a nice place to live at a reasonable price. My approach has always been somewhat conservative, I guess - but it's more about certainty. That's why I go with repayment mortgages (and longer fixed rates when I can). I like certainty. I plan to be around when these mortgages are paid off. As one mortgage comes to an end, the income I used to send to it, I redirect to another... thereby making the balance of that one tumble dramatically. I have always lived within relatively modest means. The problem with this gig is the addiction side... I always wanted to have 10 properties let out. Will 10 be enough? I cannot see that I'd ever make it to 20, without a drastic change in approach, so 11, 12 - well, they don't make number-sense to me... the addiction side means I like doing this more than I like doing my real work, and I know it will help to keep me busy and active when I eventually retire (which is likely to be as early as possible).

If I knew then, what I think I know now, I would not even have enrolled in the company pension scheme almost 20 years ago... I would sort myself out, and I'd do it with houses. You might think houses are about as far from liquid as you can get... they're nothing compared to the locked-in nature of a pension... all that money, I can see it, but I can touch it (and I'm not allowed to invest it better myself).

I was certainly motivated by the fact that I have always been self-employed,or had the kind of  casual jobs that had no pension.Even state pension would be at the lowest end. The original plan was that within 5 years I would move near the sea,preferably in the south of France,and run a dog rescue financed by the rentals.I  was clearly insane.  I did have a brief period of portfolio envy,after dealing with a man with 18 properties, who started around the same time as I did.He also had a very well-paid job.I wisely realised that he was not an insecure nervous wreck like me,so that door was closed to me at birth. Small is beautiful.

Was?

Are! Is! Am!

Insane, I mean... 

I do seem to be regarded as eccentric,can't think why.

Because you stuck around here.

Yes,this does seem to be the forum for the "alternative" take on things,and all the better for it.Normal people are very dull.