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I have a £70,000 mortgage on my house.

I am about to come into £170,000. With this money, I want to pay off my mortgage. Turn my house into a rental property and use the remaining £100,000 as a deposit for my personal house with a £200,000 mortgage.

But I could keep the £70,000 mortgage and use the £170,000 as a deposit on my new house with a £130,000 mortage. potato - potAHto.

My reasoning for thinking the former is better is that I would have to change the terms of my first mortgage to a "buy-to-let" mortgage and pay a higher interest rate. It's better to have the loan on my personal house because then I'll pay the lowest rate of interest.

Is there any reason why doing that would be the wrong thing to do? Maybe there is something I am missing.

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  • With a £130k deposit, you could perhaps buy a more expensive house; do you want to? If not, your first plan sounds sensible, assuming you don't need the cash for something else. PS: nobody says "potAHto"; I hate that song. ;-) Nov 6 '21 at 15:17
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    I don't know UK tax law, but in the US, mortgage interest offsets rental income, so it can be advantageous to have rental properties leveraged to a higher degree than primary residence. Check to see if that sort of situation is true for you.
    – Hart CO
    Nov 6 '21 at 16:07
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    Note that your plan A does have certain tax implications: you'll have to pay additional stamp duty (probably £9k?) it you end up owning two properties.
    – Andrew
    Nov 6 '21 at 22:56

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