Thanks for input ircoha. We can only plan based on the information currently available. If policies do change then I'm lucky enough to have savings to fill the void if interest relief is reduced. At the minute, the 75% of interest write-off of a BTL mortgage looks attractive in offsetting income tax, PRSI, property tax, water charges, LPT, PRTB, house insurance etc charges.
However, for myself I've decided that I wouldn't touch Irish property with a forty foot pole. Anything that is so highly incentivised by the government has got a major chance of going wrong.
Cow pat has €100,000 cash.
He has two options
If he borrows €100k interest only, the annual interest bill will be
- Buy with cash
- Borrow the €100k interest-only and put the cash on deposit
The best instant access deposit account pays 2% gross, or 1% after taxes and USC. So he will earn €1,000€100k@ 5.5%|€5,500 |
Tax relief| €1,690 |€5,500@75%@41%
Net interest bill|€3,800
The cost of borrowing to invest, while he has money on deposit is €2,800 a year per €100,000 borrowed.
So the answer is very clear - do not borrow to invest at 5.5% if you have the cash available.
The only exception to this would be if you had some need of the cash in the immediate future and would have to borrow at higher rates to fund that expenditure.
Aren't you forgetting that cowpat will not being paying the cost of borrowing. He should be getting it from the rent. So your figures don't show the true cost to him.
At the end of this calculation, after 20 years of mortgage, how much will it have cost Cowpat to acquire an asset.
I will have to do a Key Post on this issue
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