is BTL better bought on an interest rate only?

[sl129]

i have been told that if i am buying a property to let, then the best way is to go for interest rate only mortgages. why would that be the case?

[Yingtan]

The main reason is that only the interest part of the mortgage payment is tax deductable. Also in the current climate if you opt for a capital and repayment mortgage then you are more than likely to be in negative cash flow.

The assumption is that when you choose to repay your current lender. You either sell at a higher price than the mortgage or you refinance further. This assumption has its flaws in a market which is stagnate or falling. But I think the take most buy to let investors take is that over a long period house prices will always

Hope this helps.

[rob.jarvis]

Also, you get more for your money. Interest only payments are less than repayment.

However, it's not a strict rule. If I could afford to, I would have my properties on repayment terms. At least then by the time I retire I would own all of them outright and the rental income would provide some pension money.

[Tax Accountant]

It basically boils down to cashflow and personal attitudes to debts.

Interest only helps cashflow in the short term but you retain the full debt forever until you sell.

Repayment basis is likely to use up all or even more of your rental income. You are also more than likely to finance part of it from your other resource. But it chips away at your debt and over a period it is surprising to see how much has been reduced. It also means a substantial saving in interest charges over the life of the loan because as your loan reduces, you are charged interest on reducing balance.

Personally, if you can afford to, I would prefer a repayment mortgage. It gives you peace of mind in the knowledge that the loan is being chipped away so that you own more and more of the property yourself. Also the extra amount paid in the repatment mortgage is surprisingly not all that much more, so much so that you will not even notice it after a while. Therefore, in your overall equation, you are not really likely to miss the extra amount from your pocket which may otherwise end up being spent on other things.

Ramnik

[jayjaykay100]

Another way to look at it is that you can use one property to pay off the outstanding mortgage debt of the other. Inflation will errode real value of the mortgage debt; I bet your parent only paid a few grand for their house twenty five years ago and the house will have grown in capital as well.

Also you're not paying the interest on your mortgage your tenant is so it's a interest free loan and you gain from the rise in house prices.

Just the way I look at it anyway.