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should we just pay off tye 52 k left on our mortgage if we can?

(31 Posts)
KierkegaardGroupie Sat 17-Jan-15 17:52:28

We have a property we let out in Brighton....We have 52 k left on it...it is worth about 160 k...We rent it out as we live overseas where we rent a family home.
We pay 220 pounds interest a month on that 52k loan. We make very little on the 52 k...so it seems obvious to me we just use my savings to pay off this flat my husbAnd bought ...it is in his name. But am I missing something? We may well sell that flat in the next few years to release equity to buy in the U.S.....We rent a family home we love here but probably should buy as we, plan on staying in the U.S. and live in an expensive city...350 k for a modest family home near good schools so similar to London. We would still have some savings left...say 20k in the uk if anything needed doing on that Brighton property.
It seems obvious if you are, paying 5 percent to borrow 52 k and have 52 k in an account getting 1 percent....you pay your loan off.
Any savvy financial people able to input on this? It means we cannot buy in the U.S.....as that money is our deposit for a house here....my feeling is Brighton is a safe market...the property will most likely go up in value...in the next few years we could hang onto it for.

lljkk Sat 17-Jan-15 18:58:13

There's something to do with business expenses, you can offset the mortgage interest against income, which is why it's usually advised to NOT pay off buy-to-let investments.

I hate it, though, goes against my instincts, too.

This explains better.

KierkegaardGroupie Sat 17-Jan-15 19:06:09

Thanks so much. If that is our only property is it still buy to let. Husband's there for three years...rented for 8 years. It would generate 650 rent a month which we would just save in the uk till we need to access it. But maybe it will affect how much us taxes we pay here. If we suddenly have an extra 12$k a year even if it us coming in in the uk. Food for thought....Will get Dhaka to look at link too. I was the saver but never bought property.....but my money makes very little as I am busy with small kids and do not make it work for me. We love the house we rent...near the best school.We cannot afford to buy this house ..so will downstate to something less dream house. That is to be considered too....maybe we keep renting the dream home whilst someone rents our flat in the uk.....

KierkegaardGroupie Sat 17-Jan-15 19:07:05

Dh not Dhaka.....autocorrect responsible for all sloopiness

RandomFriend Mon 19-Jan-15 15:32:03

Keep the flat in Brighton. It will most likely go up in value. And you have somewhere to move back to, if ever you do.

Put the cash in some ISAs and $20K in a 123 Sandander current account (you need direct debits to set that off).

You can also claim a personal allowance in the UK against any profit that you make on the property. You can do a statement each year of income, expenditure (including interest) and any other expenses for the flat. Remember that between tenants, there will be zero income. You can also offset the cost of an annual visit to the property (so up to one flight per year for your DS can be claimed as a business expense, if he visits the property).

Also (but I am not sure about this) due to dual taxation treaty, you shouldn't have to pay US tax on income that has been taxed in the UK.

KierkegaardGroupie Fri 23-Jan-15 00:50:45

Thanks Random...so helpful.
So the question is do we use a lot of savings to pay it off meaning it would be hard to buy in the US...we need 20 per cent deposit here or we pay silly mortgage insurance...however we can lock in a 3 per cent interest rate here for 30 years which seems amazing to me.

KierkegaardGroupie Fri 23-Jan-15 00:52:13

I am right in understanding g you only pay tax over 10000 a year in the uk...so if our flat makes 8000 a year once we pay it off....that means we pay no tax.....need to check this.....

holidaysarenice Fri 23-Jan-15 00:57:46

You've spoken of your money and his flat. Make sure that house is in joint names etc before you sink your savings.

You could change mortgage to an offset, thus retaining the option to use the money in the us as well?

Boleh Fri 23-Jan-15 01:04:12

I'm in a similar situation and I'm afraid that if you live abroad you can't put money into a UK ISA nor can you open a Santadar 123 account (I have looked at both!).
Equally there really isn't much advantage to paying off the mortgage if your tenant is currently covering the whole mortgage. You'd just end up making more profit from the rental which may take you over your tax allowance. Even if it's your only house and you've lived there previously your mortgage company probably requires a 'consent to let' renewed every year. These are a total PITA as I have just discovered that mine means I can't change my mortgage at all, even when the fixed rate ends - so I either go into the horribly high variable rate or the nearly as high buy to let rate with a 2k arrangement fee! Looking at finding a new mortgage company.
I'm afraid I don't know what to suggest, if anyone does, please let me know!!
I've even considered putting it into some kind of share account but I'm nervous of what I could end up loosing. Like you I hope this to be a house deposit when we move back.

kathhere Fri 23-Jan-15 01:39:46

Not answering your question but £650 monthly rent for Brighton seems very low. Would it affect your calculations if you got more for it? And - I don't think any Brighton property prices have gone down for years - they're still climbing if anything -so id hold on if you can

KierkegaardGroupie Fri 23-Jan-15 13:45:21

We get 750...100 goes straight to management agency.....not a huge place but great location.

KierkegaardGroupie Fri 23-Jan-15 13:49:45

Thanks holiday and boleh....well as we are married it is all joint...but yes I saved the money and he bought the flat before we met. We should buy here as our rent at 1800 pounds a month is more than a home loan on a modest home as you get a tax break on the interest you pay worth thousands a year. I thought you had to make 10 k in the uk before you pay tax....but maybe it will affect our American taxes here.....

KierkegaardGroupie Fri 23-Jan-15 13:53:37

Thanks Kath.....if we hold on to it....it will affect the size of property we can buy here....we will only afford a cramped two bed maybe rather than a 3 bed we could stay in the whole time we raise our family. But I agree property in Brighton will continue to rise in value but do we want to compromise quality of space here for a few extra thousand in 11 years....it will be paid off then.

RandomFriend Fri 23-Jan-15 14:36:12

How will having a property in the UK affect the size of the property you can buy in the US? Are you considering of selling the UK property in order to put a deposit on the family home in the US?

If so, that is a very different question.

KierkegaardGroupie Sat 24-Jan-15 15:20:16

Yes. That is exactly what we have to decide. Sell Brighton and release 140 k dollars towards a home here....it would be the difference between being able to get a small home and a more adequate sized home we could stay in right through famy days. We rent now but want to buy. Selling Brighton means we can get a home here that is arguably more adequate for our needs. It is 550 k just for a 2 bed.....we have two kids so are trying to decide as well if we should just buy a more expensive property...like 650 to 700 k ...but we must sell the flat.....I'm the meantime paying off the mortgage on flat saves 650 $ a month on interest....till we sell the flat.

Cornonthecob Sun 25-Jan-15 22:08:06

Your kids may one day want to live in the UK, getting on the housing ladder could be tough, so keeping the Brighton property and being happy with the compromise home is what I'd do! But that's me!

KierkegaardGroupie Mon 26-Jan-15 01:40:53

Thanks Corn. Good point. I guess it will be paid off in 11 years. Maybe when I return to work we can use all my salary to pay off Brighton as quickly as we can. Just such a big difference between 2 bed and 3 bed....1100 s feet versus maybe 1500 square feet. Lots to think about.

FlowerFairy2014 Mon 26-Jan-15 07:53:00

You need to look on line about US double tax (eg Boris Johnson as he holds dual citizenship just had to pay US capital gains tax when he sold his UK home - no UK capital gains tax on your home but US people pay that that - he has just had to pay it). In the UK your income is under £10k so no tax on the rent if you pay off the loan BUT check if you pay UK tax on US income as you are UK citizens OR if you have to put on the US tax return your UK rental income. Anyway assuming no income tax in US or UK on the rent....

If you need the capital from the UK place to buy your place in the US then of course sell it. You have no other choice. Be aware it is very hard to get UK loans now due to 2014 new criteria which is causing a lot of people NOT to pay off Uk loans as they may not be able to get a loan again.

Secondly you think 3% is low. My daughter was just offered a 2 year fix at something like 1.24% in the UK but was paying nearly 5% when her flat was a buy to let (it is still "buy to let" in hers and your case where the person only owns one place which they let out).

I would certainly think if you possibly can keep the UK place so you have that foothold in the UK and a bit more security even if it means paying the extra US insurance for buying the higher mulitple (that sounds a really good idea - in the UK they just slap a massive great extra interest charge on you if you borrow 90% rather than letting you insure against the extra risk).

lljkk Mon 26-Jan-15 16:31:01

Did Boris pay capital gains when he sold his Home or when he sold a property that had been his home, but had since stood empty/been rented out. Every news article I read about this refers to the property as his "first family home". Since I doubt he only recently bought his first residence, I think it's a property which must have changed use.

FlowerFairy2014 Mon 26-Jan-15 16:34:43

I read in the papers that it was the family home and in the USA you don't get capital gains tax relief for that (although they do have other things like tax relief for mortgage interest we no longer have here) and as the capital gain would have been taxed in the USA and he is a US citizen he had to pay it. He has said it was a lot less than £100k so perhaps he had a lot of tax reliefs to set against it. I suspect it takes the US authorities about 5 years to catch up with people so the sale was a long while ago. mind you he has a baby with a mistress and was not living at the family home for a while so I bet he has fairly complex domestic arrangements even if back now living with his barrister wife.

lljkk Mon 26-Jan-15 17:25:11

You do get American tax relief for capital gains on your residence, you even get tax relief on capital gains from investment property as long as you buy another investment property within a certain time window (6 months?). Am American & my dad had problems deciding what to do about an investment property not so long ago. My dad is maybe the only American that still does his own Tax returns by hand. He even won a case brought by the IRS, once.

There's Devil in Them There Details.

FlowerFairy2014 Mon 26-Jan-15 17:29:17

The BBC who do not usually get things wrong wrote a few days ago - "Unlike the UK, the US levies capital gains tax on proceeds from the sale of a main residence". www.bbc.co.uk/news/uk-politics-30932891

lljkk Tue 27-Jan-15 01:56:05

Devil in the detail.

lljkk Tue 27-Jan-15 02:00:23

Ways to avoid the devil in property value gains.
American tax code is insane.

kickassangel Tue 27-Jan-15 02:22:27

You should be doing tax returns in the UK and the US, but any tax you pay in the UK will be refunded in the US. As you are non-resident in the UK you don't have to pay tax. Either you pay it, then reclaim it each year, OR you arrange to have the agency pay you the full amount without tax deducted.

Either way you have to declare it on UK & US tax return. Your US tax return allows for you to write off a certain amount of the value of the property to allow for wear and tear.

To know whether you should be keeping the flat or selling it, you need to think about how likely you are to remain in the US for the rest of your life.

UK house prices rise faster than US ones. If you sell your flat in the UK you may never be able to buy back into the UK again, or at least not without a massive downsizing. This becomes more true the longer you remain in the US. Of course, once your kids have grown up, the downsizing issue isn't as important, or you may resettle somewhere relatively cheap rather than Brighton.

So - if you don't think you'll want to buy a family home in the southern half of the UK in the next 15 years, then selling the flat would be quite sensible if it allows you to buy a good home where you live.

If you think you'll want/need a place to come back to in the UK you should think about keeping it.

Any maths you do to try and help you decide is, of course, based on the current situation. That could change in a heart beat. No-one can predict the future, so too much analysis is just confusing, IMO.

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