I have a few buy to lets that i am managing to make up to date repayments on, i also have a home mortgage with AIB with about €75k left all mortgages are thankfully on trackers. I am wondering should i reduce the capital on my home mortgage at a faster pace as i would like to clear this home loan quickly over the next few years so that if problem occurrs with buy to lets my own home may escape the banks
A few buy to lets - should I pay off home loan to make sure home is safe?
- Thread starter bricksguy
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Brendan Burgess
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Hi bricksguy
Plan A - pay off your home loan "so that if problem occurrs with buy to lets my own home may escape the banks"
I don't think that will work. If you are unable to pay your buy to lets, then the bank will repossess them and register a judgment against your home. So that is not a reason for paying off your home loan.
Plan B - Keep your cash in case you need it to retain your trackers
I think that this is a better plan. Let's say that interest rates rise, a tenant doesn't pay for a few months and you fall into arrears. The bank will exploit this opportunity to try to get you off your tracker. If you have a cash reserve, then you can meet your repayments and retain your tracker.
If you run out of your reserve, you will probably be able to get a payment holiday on your home loan repayments to fund your buy to let repayments.
There is also a possibility that the lenders will offer people deals to come off trackers or will give them some incentive to pay capital off their cheap tracker. So keep your cash available for this.
You mention that you have "a few buy to lets". If you have high borrowing, then you should consider selling a property and reducing your borrowing accordingly. This will reduce the risk. However, if you have cheap trackers, these are probably very profitable businesses and maybe it's less risky to retain them as the profit will reduce your overall negative equity.
Other issues
Building up a cash reserve is the most important consideration. When you get to a stage that you are no longer worried about arrears and losing your trackers, it is usually correct to pay off your home loan before your investment property. You get tax relief on 75% of the interest paid on the investment property mortgage but no tax relief on interest paid on your home loan. As the interest rate on the investment property might be higher than on the home loan, you will just have to do the calculations.
Case study
It's helpful to list out all the details in a Case Study format as it may give rise to other issues. There is a very interesting case study of someone with multiple buy to lets and some cash wondering which one to pay off. Unfortunately I can't find it at the moment. You might check through the threads yourself. It sets out a lot of the issues you have and a few of us gave our different opinions on it.
Plan A - pay off your home loan "so that if problem occurrs with buy to lets my own home may escape the banks"
I don't think that will work. If you are unable to pay your buy to lets, then the bank will repossess them and register a judgment against your home. So that is not a reason for paying off your home loan.
Plan B - Keep your cash in case you need it to retain your trackers
I think that this is a better plan. Let's say that interest rates rise, a tenant doesn't pay for a few months and you fall into arrears. The bank will exploit this opportunity to try to get you off your tracker. If you have a cash reserve, then you can meet your repayments and retain your tracker.
If you run out of your reserve, you will probably be able to get a payment holiday on your home loan repayments to fund your buy to let repayments.
There is also a possibility that the lenders will offer people deals to come off trackers or will give them some incentive to pay capital off their cheap tracker. So keep your cash available for this.
You mention that you have "a few buy to lets". If you have high borrowing, then you should consider selling a property and reducing your borrowing accordingly. This will reduce the risk. However, if you have cheap trackers, these are probably very profitable businesses and maybe it's less risky to retain them as the profit will reduce your overall negative equity.
Other issues
Building up a cash reserve is the most important consideration. When you get to a stage that you are no longer worried about arrears and losing your trackers, it is usually correct to pay off your home loan before your investment property. You get tax relief on 75% of the interest paid on the investment property mortgage but no tax relief on interest paid on your home loan. As the interest rate on the investment property might be higher than on the home loan, you will just have to do the calculations.
Case study
It's helpful to list out all the details in a Case Study format as it may give rise to other issues. There is a very interesting case study of someone with multiple buy to lets and some cash wondering which one to pay off. Unfortunately I can't find it at the moment. You might check through the threads yourself. It sets out a lot of the issues you have and a few of us gave our different opinions on it.
Surely using Brendan's logic If he is unable to pay his home loan then then the bank will repossess the home.
Better the bank repossess the BTLs than the home, I would think for most people.
But after they have sold the BTL's in a firesale they will then go after the house, particularly if it is in equity, which is what the OP is proposing to do.
Brendan Burgess
Founder
- Messages
- 52,204
Hi cremeegg
It is much easier for the lender to repossess a buy to let than a family home.
If someone is having temporary difficulty in paying their mortgages but think that they will recover, they should probably keep the buy to let up to date.
- The lender can't charge penalty interest on the home loan in arrears
- They can't kick the home loan off a tracker
- They will probably agree to a rescheduling.
- The courts are slow to repossess family homes
Brendan