Repay mortgage on BTL or home?

[flinn]

Popular wisdom seems to be that I should pay off my home mortgage first, enabling me to maximise my allowable expense of BTL mortgage interest. However, it seems to me that it works out better to reduce my BTL loans first. What am I missing?

This is my situation,

I have 2 BTL properties, gross annual rental income £18k

home loan = 115k @ 2.74% (tracker)
BTL mortgage 1 = 85k @6.14% (3 yr fixed)
BTL mortgage 2 = 60k @5.99% (3 yr fixed)


I have £20k cash. Should I pay it off my home loan of one of my BTLs?

Thanks for any help or advice you may be able to offer.

[King_Maker]

Briefly :

Maybe not much in it.

BTLs effective interest rate for a 40% taxpayer is 3.68% and 3.59% - assuming you are /will be making profits. Adjust if a Basic Rate payer.

Watch out for any ERPs (Early Redemption Penalties).

[flinn]

king maker,

that's great thanks. would you mind briefly explaining how you came to those figures, and I am a basic rate payer, so how would I adjust them?

yes, I had thought about ERP and would spread repayment between both BTLs to avoid that.

thanks for your reply.

[King_Maker]

An interest rate of 6.14% = 3.68% after 40% tax relief.

Likewise 5.99% nets down to 3.59%.

For a 20% taxpayer, the "net" rates become 4.91% and 4.79% respectively.

I hope that clarifies the position.