100k lump sum - which mortgage to pay off?

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MelF

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This is my first thread so hope this is the correct area to post - couldn't find any other that really suited....

Would really appreciate your thoughts. I'm coming into a lump sum of 100k in the next month or two that I plan to use to pay off some of my mortgage debt. I have two mortgages at present, one on an interest-only investment property for 270k and the other on my own home for 500k. Am trying to decide which one to pay the 100k into in order to get the best out of the lump sum in the long term. I'm thinking the interest-only one as its on a higher interest rate and there is no capital being paid off, yet the 500k has a much higher balance so surely there is more interest being paid on this?

Would really appreciate some advice, am sure the answer is very simple but at the moment, I just can't see it!

Thanks in advance,

MelF
 
Chances are you should probably not clear/reduce the interest only mortgage on the investment property:

Interest only mortgage

However you might want to get independent, professional advice on what's appropriate for your specific circumstances.
 
I'd be inclined to let the investment property take care of itself (I assume the rent meets the mortgage payments). And take care of the PPR's balance (Principal primary residence)

Quick simple figures (pure interest amounts and I have guessed at the interest rates you are on on either property)
Inv property @ 5% => 13500 p/a (5% * 270000)
PPM @ 4% => 20000 p/a (4% * 500000)

you take 100,000 off botha nd you get the following
Inv property @ 5% => 8500 p/a (5% * 170000)
PPM @ 4% => 16000 p/a (4% * 400000)

There is a saving of 1K more p/a by shaving off the Investment property
You have to take into account that by doing this you end up increasing your profit on the inv property and thus your income tax liability.

Also add on the fact that I'm guessing your PPR has a better rate than the inv property due to you being a fixed rate, once you come off that the PPR becomes a whole lot more expensive.

My own advice, PPR.
Some of the other gurus around here might have other advice?
 
Thanks a mill for this, especially Clubman for directing me to the post on Investment Only Mortgages and the tax benefits, I'd forgotten about that.
Silvamuppet, the investment property (property is in three units) covers itself and also gives me about 1000 extra to put towards the PPR.
So it seems I am much better off paying the PPR then, I was thinking that the smaller figure would be faster to pay off completely in the long run so really appreciate you both making things clearer for me.
Thanks again
 
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