Pay it off, half or not?

Pay it off, half or not?

9:45 AM, 20th December 2022, About A year ago 8

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I have a £100k interest-only mortgage outstanding on a tenanted property with a value of £150K. I have the money to repay the mortgage outright – it expires in 14 days. Should I repay it all? Repay half? or remortgage the entire amount with TMW @ min 3.5% + arrangement fees?

I am trying to think of it from a tax perspective, as I am a higher-rate payer.

Which is better – take the 20% allowance on the interest paid or pay no interest and no tax allowance? If I save the £100k, I would struggle to obtain the same as the interest cost of the mortgage and my money would be locked up. Or I could hedge my bets and pay off half the balance (£50k) and mortgage the rest.

I have suffered recently selling property and having to pay redemption fees on long mortgages.

I am not planning on selling this property until prices rise again. I might buy rental property if prices sink, but I can afford the deposits needed.

All comments and suggestions are gratefully received.


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Neil Patterson

9:52 AM, 20th December 2022, About A year ago

Hi Elle,

You haven't given us enough to go on for informed analysis, but if you have a portfolio of property I would recommend booking a Landlord Tax Consultation >>

John Docherty

10:45 AM, 20th December 2022, About A year ago

Are you saying that you want to sell but you're looking for a specific sales price that you can't get right now? If you want maximum flexibility then you don't get more flexible than an unencumbered property. Otherwise, I don't see the relevance of mentioning the redemption fees on other mortgages. Personally, I would take a 5 year fix and use the spare money you have to add to your portfolio.

Judith Wordsworth

10:55 AM, 20th December 2022, About A year ago

If you’re looking to sell at some point then remortgage as outstanding amount I think can be set against CGT. But that depends if in the future any allowance can be applied to reduce CGT. Somehow think it’s going to end up £0

Tim Rogers

11:16 AM, 20th December 2022, About A year ago

The golden rule is normally keep your options open. Which in this case would be holding as much cash as possible. If you pay off the mortgage, then yes your secure, but your options are limited moving forward.

Unless you're looking to settle at your current position, property wise, and consolidate? I'd re-mortgage at a 5 yr fixed and then wait to see what the market(s) do both fiscal and property wise.

Seething Landlord

14:06 PM, 20th December 2022, About A year ago

Reply to the comment left by Judith Wordsworth at 20/12/2022 - 10:55CGT is payable on the difference between original purchase price and selling price. The amount of the mortgage is of no relevance. Perhaps you are confusing it with IHT.

Nick Pope

7:40 AM, 24th December 2022, About A year ago

Reply to the comment left by Judith Wordsworth at 20/12/2022 - 10:55
The outstanding balance of the mortgage has no bearing on the amount of CGT. It's simply calculated on the difference between purchase price (or probate value if inherited) and sale price, with allowances for certain expenses such as purchase and sale costs.

L Newland

10:36 AM, 26th December 2022, About A year ago

Reply to the comment left by John Docherty at 20/12/2022 - 10:45
Thanks for replying. I sold 5 properties when prices were high and chose to redeem a couple of mortgages early and pay the redemption penalties. I am left with 2 properties. This one was 'sold' until the buyer pulled out in November. I cannot see me achieving the price (£170k) in the near future, but remortgaging for 5 years seems a long time. It's a standard Victorian semi. That's why I was debating whether to pay off all (to give me flexibility to sell, whenever) or pay half off, which would reduce any redemption penalty if I were to remortgage for, say, 3 years and still leave me with £50k cash, if I decided to buy another when the inevitable further fall in prices happens.
Many thanks.

Tim Rogers

20:57 PM, 26th December 2022, About A year ago

If you're running a company, then you could take out a company loan, rather than a specific property mortgage.

Failing that, remortgage a different property and use the capital to remove the mortgage on this property.
(Always assuming you have other properties)

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