After 15 years in the mortgage industry, I've learned a thing or two about what works and what doesn't when it comes to home loans. Navigating the world of mortgages can be tricky, but understanding some key strategies can make a big difference. Here are five things I wouldn't do with my own mortgage, and why you might want to think twice about them too.

I Wouldn't Pay Principal and Interest on an Investment Property Loan

When it comes to investment properties, cash flow is king. Instead of paying both principal and interest on an investment loan, I prefer to pay interest-only. Why? Because it keeps my monthly payments lower, freeing up cash for other investments or expenses.

For example, on a £500,000 investment loan:

• Principal and Interest Loan at 3.57%: Monthly payments would be around £2,265.
• Interest-Only Loan at 3.77%: Monthly payments drop to about £1,571.

That's a difference of nearly £694 each month! By choosing an interest-only loan, I'm not focused on paying off the property quickly. Instead, I'm aiming to hold onto the property while its value appreciates over time. This strategy maximizes cash flow and can make managing multiple investments more feasible.

I Wouldn't Cross-Collateralise My Properties

Cross-collateralisation sounds complicated, but it's basically when you use multiple properties as security for one loan. While it might seem convenient, I avoid this strategy. Here's why:

Keeping loans separate for each property simplifies everything. It's like having separate folders for different projects—they're easier to manage and less confusing. When you mix properties in one loan, it can lead to messy situations, especially at tax time.

By keeping my owner-occupied home loan separate from my investment property loan:

• I can clearly track which loan relates to which property.
• It's easier to calculate tax deductions on the interest for investment properties.
• I maintain more control over each property's financing.

Mixing debts can complicate things and might not be in your best financial interest. Keeping them separate provides clarity and flexibility.

I Wouldn't Choose a No-Frills, Basic Home Loan

At first glance, a no-frills home loan with no annual fees and perhaps a tempting cashback offer might appear attractive. However, these loans often lack important features that can save you money in the long run.

For me, having an offset account is essential. It's a transaction account linked to your mortgage, and the balance offsets the interest charged on your loan. This means more of your repayments go towards paying down the principal.

Additionally, I value flexibility:

• Ability to fix a portion of the loan: Locking in a fixed rate on part of your loan can provide certainty with your repayments.
• Option to make extra repayments: Paying extra when you can may reduce the interest over the life of the loan.
• Redraw facilities: Accessing extra payments if needed can be a helpful safety net.

No-frills loans often don't offer these features. It's like buying a car without air conditioning or power windows—it might be cheaper upfront, but you might regret it later.

I Wouldn't Stay Loyal to One Bank

Banks are businesses, and while loyalty might be rewarded in some areas of life, with banks, it's often not. Interest rates and offers change frequently, so I review my mortgage every couple of years to ensure I'm getting the best deal.

Refinancing can offer:

• Lower Interest Rates: Saving even half a percent can make a significant difference over time.
• Better Loan Features: New products might offer more flexibility or better terms.
• Cashback Offers: Some lenders offer cash incentives to switch.

Think of it like shopping for insurance—you wouldn't automatically renew without checking if there's a better deal out there. The same applies to your mortgage. By not being tied to one bank, you keep your options open and could save thousands over the life of your loan.

I Wouldn't Use Equity from My Investment Loan to Pay Down Owner-Occupied Debt

It might be tempting to use the equity from your investment property to pay off your home mortgage, but this can lead to complications, especially with taxes. Mixing these debts can blur the lines between what's tax-deductible and what's not.

Investment loans often have tax-deductible interest because they're used to generate income. If you use funds from an investment loan to pay down your own home's mortgage, you could lose that tax benefit on the portion used for personal debt.

It's like mixing business expenses with personal expenses—it can get messy and potentially lead to issues with the tax office. Keeping your investment and personal debts separate ensures clarity and maximizes potential tax benefits.

Final Thoughts

Managing a mortgage is one of the biggest financial responsibilities many of us will face. By avoiding these five strategies, I've found greater clarity, flexibility, and potential savings in my financial journey.

Remember, everyone's situation is unique. It's important to consider your own financial goals and perhaps seek professional advice tailored to your needs. If you're curious about how different mortgage strategies could affect you, our Advanced Mortgage Calculator can provide some valuable insights.

Looking to understand how much you can afford? Check out our Affordability Calculator. And if you're considering making extra payments, our guide on overpayments vs. bigger deposits might be helpful.

Making informed decisions about your mortgage can save you time, money, and stress in the long run. Stay proactive, keep learning, and don't be afraid to ask questions. After all, it's your financial future at stake.