Splitting a mortgage between 2 houses

C

camcor

Guest
Hi All,
Myself and my wife own a 3-bed semi-D in Foxborough in Lucan and are looking to take a step up on the property ladder.
We have about €130,000 left on our mortgage and an estate agent has told us we may get up to €380,000 for our own property.

We were just going to sell our own and buy a 4-bed semi-D in lucan for anything up to €520,000 which would be €560,000 approx. with stamp duty. That would leave us with a mortgage of roughly €320,000 which we think would leave us comfortable enough to absorb any interest rate rises that may be coming.

However, a friend of mine suggested keeping our own house and renting it out. He suggested we could get a mortgage to cover both houses, so say €130,000 on our own plus €560,000 = €690,000
Then split this between the two houses, get an interest only mortgage on our original property of €345,000 and rent it out.
That would leave us servicing a mortgage of €345,000 approx on our new home which is about what we could afford and still owning 2 properties!!

This all sounds a bit crazy to me, is it possible? Are there lending institutions out there that would go for that arrangement?
Is it prudent? I suppose, worst case scenario, you could always sell the original property if you had problems renting or whatever?

Sorry about long winded post!!
 
If you are comfortable with a €320k mortgage, you should not make yourself very uncomfortable with a €690k mortgage.

The "worst-case scenario" is a lot worse than you think:
Interest rates are expected to rise by 1% over the coming year.
If you can't rent your house, you might find yourself unable to sell it either. You will have an extra €380k of a mortgage which you might have difficulty servicing because of the higher interest rates.

There are also tax reasons for selling your home now:
1) The entire gain will be exempt from Capital Gains Tax. If you keep the house and if it does not rise in value, you will still get a CGT bill.
2) When your new home and mortgage is more comfortable in a few years, you can buy a new property for investment. Get a 100% mortgage and you will get tax relief on all the interest, and not just on the €130k you have left at the moment.

Against that, there are costs in selling your home and buying a new one.

Property is a good long term investment, but there is a significant chance that in two years, properties will be a lot cheaper.

Brendan
 
Thanks for the reply Brendan. Food for thought there alright. I would be one of those people that just can't see houses getting cheaper, the price rises reaching a plateau, sure, but falling substantially, I just can't see it.
However, to here it put in stark terms of "there is a significant chance that in two years, properties will be a lot cheaper" definetely gives me pause.
Thanks
 
People in japan and uk in 1990 couldnt see property going down either. do you think the fact the rent you will get after expenses is less than the interest on an interest only mortgage is a good sign?? if rents arent rising is there really a huge shortage of properties?? dont get caught up in the mania.
 
It is possible to keep the property. If you hold on to your current property you will pay aprox €390pm on €130k interest only. You will get aprox €1250pm rent. If rates rise by 1% we will still have the loest rates in Europe. The market will still be hot and a raise of this amount should not slow it signifigantly.

I am a broker - I buy and sell property in Ireland and abroad, I also have a masters in economics therefore I am an expert in this area.

My advice is to go for it, you wont regret it.
 
Sloopy said:
It is possible to keep the property. If you hold on to your current property you will pay aprox €390pm on €130k interest only. You will get aprox €1250pm rent. If rates rise by 1% we will still have the loest rates in Europe. The market will still be hot and a raise of this amount should not slow it signifigantly.

I am a broker - I buy and sell property in Ireland and abroad, I also have a masters in economics therefore I am an expert in this area.

My advice is to go for it, you wont regret it.
Click to expand...
Then he will have a 560k mortgage on new property and will have much higher mortgage payments on the new one,you cant look at the current house in isolation and as an expert you know that the investment in the first house isnt 130k outstanding mortgage amount its the current value of 390k
 
Sloopy said:
It is possible to keep the property. If you hold on to your current property you will pay aprox €390pm on €130k interest only. You will get aprox €1250pm rent. If rates rise by 1% we will still have the loest rates in Europe. The market will still be hot and a raise of this amount should not slow it signifigantly.

I am a broker - I buy and sell property in Ireland and abroad, I also have a masters in economics therefore I am an expert in this area.
Click to expand...

With all due respect, stating qualifications on an anonynous board is somewhat pointless, I don't doubt you, but you know the way it is.

E1250 seemed high to me but low and behold there is indeed a property on Daft in Foxb. for that amount, however it has been advertised for the last 15 days and still is. My point is that I think E1000 over a 10 month year is a more likely figure. I see a lot of properties in that area coming up for rent these days. Walk the length of Ballyowen lane any day of the week and ask yourself who do you think will be renting these properties in 2 years time and how much they'll be prepared to pay.

I think there are a lot of people in the area who are starting to do the same thing as yourself, trading up without selling their previous property, and I suspect there is a fair chance that in a couple of years that the area won't be desirable to rent OR buy in because 1. More rental properties mean more competition for tenants. 2. More rental properties make an area less desirable to owner occupiers.

I would suggest you are better off cashing in now. This is based on the local area rather than the property market in general.
 
Sloopy said:
I am a broker - I buy and sell property in Ireland and abroad, I also have a masters in economics therefore I am an expert in this area.
Click to expand...
When did elementary arithmetic cease to be a requirement for an MA in Economics? :confused:
 
I am a broker - I buy and sell property in Ireland and abroad, I also have a masters in economics therefore I am an expert in this area.
Click to expand...
There a experts on cars and then there's mechanics ....
 
You could start out by doing interest only on the rental house to the tune of what you expect in rent, ie if rent is 1250E a month work out over say 3yr fixed rate that you pay same to that interest only mortgage so you will pay no tax on as you are making no profit then rest you should manage yourself on a normal mortgage for your home , try work on renting house for 10 mth year to be safe even though I have never had a vacant month so far myself and hopefully you wont either, then after 3 years take a look at your option how much both houses have gone up in value and they will,
 
I'm in a similiar situation as yourself
Current Mortgage is approx 130k and plan to purchase new property for 385K
Which will leave me with a total mortgage of 515K
I'm getting mixed answers in relation to amount of mortgage interest you can write off as an expense. I think the first option below is correct ? can somone confirm please ?
1 - you are restricted to only deducting mortgage intrest on 130k regardless of how you split the mortgage - if this were the case I would sell as you will have to pay tax on this rental income
2 - If you can split the mortgage between both properties and can write off mortgage interest on full mortgage on the rental property I'd go for it. Split the mortgage in a way that ensures you never make a profit and concentrate on paying for you PPR. Is this really an option ? if so how do you go about it ?
 
You can only offset interest on monies used to "buy, improve or renovate" the investment property so in this case the original €130,000. Other expenses such as agent fees, insurance and any other costs involved in running the property can also be offset.

Sarah

www.rea.ie
 
We sold our house for 370K when I got a job offer in Limerick. We bought a new 5 bed detached house in Castleconnel, a lovely village just outside Limerick.
Our house in Lucan would now be worth about 350K, they've gone down in that area, and would be much harder to shift, we sold in two weeks last August. Rental income in that area has got to be harder to come by also i presume.
So we're delighted we sold in the end and we love everything about the move out of Dublin.
Thanks for everyone's advise, especially those that advised to sell up. It feels like it was perfect timing.
 
There's a lot to be said for fighting the cultural myth of "untold wealth" and the pot-of-gold-at-rainbow's end scenarios which are rife. Sounds old-fashioned but staying clear of large debt and choosing peace of mind and quality of life are "the good life". Great news! :)
 
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