Aug 19 in Mortgage Ready
Property spot light
61 Palatine Road, Wallasey, CH44 7EN - £125,000
This property comes tenanted for £850 PCM ON A 5 YEAR FIXED GURANTEED RENT SCHEME
Lets brakedown the numbers asign a Wealth Creation Strategy
1. Property Purchase and Initial Costs:
- Property Price:£125,000
- Deposit (25%): £31,250
- Mortgage Loan Amount: £93,750
- Stamp Duty:
- If this is an additional property: £3,750 (3% of £125,000)
- If this is your main residence, no stamp duty is payable.
2. Monthly Cash Flow:
- Rental Income: £850 per month
- Mortgage Payment: £547 per month (assuming a 5% interest rate over NEXT 5 YEARS FIXED
- Monthly Rental Profit: £303
3. Overpayment Strategy:
You plan to use the entire monthly rental profit (£303) to overpay the mortgage. This increases your total monthly mortgage payment from £547 to £850.
4. Impact of Overpayments Over the Next 5 Years:
- Total Overpayment Per Month:** £303
- Total Overpayment Per Year:** £303 x 12 = **£3,636
- Total Overpayment Over 5 Years:** £3,636 x 5 = **£18,180
By overpaying £303 each month, you will reduce the principal balance of the mortgage more quickly, leading to substantial interest savings and shortening the loan term.
Estimated Reduction in Mortgage Term:
- Without overpayment, the mortgage would last 25 years.
- With the overpayments, you could reduce the term by approximately 11-12 years, but since you are focusing on the first 5 years:
- You will reduce the term by about 2-3 years within the first 5 years.
Estimated Mortgage Balance After 5 Years:
- Without overpayments: The balance might be around **£84,000**.
- With overpayments: The balance could be reduced to around **£65,000-£70,000** depending on how much interest is saved.
5. Equity Growth Over 5 Years:
Assume property value increases by 10% each year:
- Year 1:** £125,000 * 1.10 = £137,500
- Year 2:** £137,500 * 1.10 = £151,250
- Year 3:** £151,250 * 1.10 = £166,375
- Year 4:** £166,375 * 1.10 = £183,013
- Year 5:** £183,013 * 1.10 = **£201,314
Total Estimated Equity After 5 Years:
- Property Value:** £201,314
- Mortgage Balance (with overpayments):** Approx. £65,000-£70,000
Equity Calculation:
- Equity = Property Value - Mortgage Balance
- Equity after 5 years:** £201,314 - £70,000 (approx) = **£131,314
6. Wealth Creation Strategy:
Year 0:
- Initial Investment (Deposit + Stamp Duty): £31,250 + £3,750 = £35,000
Year 5:
- Mortgage Principal Paid Down: Reduced by £23,750 - £28,750 (including overpayments).
- Property Value: £201,314
- Equity: £131,314
- Return on Initial Investment:
- Equity after 5 years: £131,314
- ROI Calculation:** £131,314 / £35,000 = 375%
Wealth Creation through Overpayment and Property Appreciation:
1. Accelerated Mortgage Payoff:** By using rental income to overpay the mortgage, you are significantly reducing the mortgage balance, which lowers your interest payments and shortens the loan term.
2. Property Appreciation:** The estimated 10% annual increase in property value leads to substantial equity gains, further enhancing your overall wealth.
3. Equity Growth: Your equity in the property grows not only through mortgage paydown but also through the increasing property value, creating a strong foundation for future financial stability and potential reinvestment.
Next Steps:
- Continue Overpayments:Maintain or increase overpayments to further reduce the mortgage term and interest payments.
- Reinvestment Options:
Consider leveraging the built equity to reinvest in additional properties or other investment opportunities, further diversifying your wealth portfolio.
This strategy effectively uses rental income and property appreciation to build wealth while minimizing debt over time.
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Property spot light
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Founded by financial adviser Emmanuel Asuquo, this group exists to help individuals achieve financial freedom through wealth creation.
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