Clear mortgage on Rented property?

H

happycamper

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I have a rented house that I've owned since 1999 with an outstanding mortgage of 34k on a tracker which is now at 3.25%. Mortgage has a life of another 5 years till May 2028. House has been rented since about 2004, is now with a HAP tenant who has been onsite for about 8-9 years. Rental is 1150eur a month.

I was always hanging onto this mortgage as the tracker was so attractive, I have the excess funds to clear this immediately from savings and am considering doing so.

Any downsides before I push the button or anything to consider?

HC
 
Unless you will need the money in the next few years, or have a better home for it, pay off the mortgage. 3.25% guaranteed return after tax.
 
cremeegg said:
Unless you will need the money in the next few years, or have a better home for it, pay off the mortgage. 3.25% guaranteed return after tax.
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I disagree with cremeegg's analysis. The after tax return is 3.25% less your marginal rate of tax on this interest (on the assumption that the loan qualifies for interest relief).
 
There is many right answers. Depends on your circumstances and appetite for risk.
If you don't need the money for anything else pay it off.
In a moment of weakness it can be very easy to convince yourself to do an large impulse buy. The worst of both worlds would be to have a large impulse buy that you regret and still have a mortgage that you have to pay each month.
 
JimmyB99 said:
I disagree with cremeegg's analysis. The after tax return is 3.25% less your marginal rate of tax on this interest (on the assumption that the loan qualifies for interest relief).
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The interest saving made from paying off the mortgage is an after tax return. The interest of 3.5% is before any tax relief so it is costing less than the 3.25% to keep the mortgage.
 
cremeegg said:
The interest saving made from paying off the mortgage is an after tax return. The interest of 3.5% is before any tax relief so it is costing less than the 3.25% to keep the mortgage.
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I'm confused
Are you recommending paying it off?
Or keeping?
 
Hi cremeegg,

You’re thinking about this incorrectly.

The ‘hurdle’ is circa 1.625% after-tax because interest on rental income is tax deductible.

(I’m assuming that the person is a higher-rate tax payer).

Say I owe €100,000 on my home mortgage at 3.25% and €100,000 on my rental property at 3.25%, plus I have €100,000 on deposit.

The after-tax saving from clearing the home mortgage is 3.25%. The after-tax saving from clearing the investment property mortgage is 1.625%.

Unlikely I’d invest rather than clearing the home mortgage.

I might invest rather than clearing the investment property one.
 
Gordon Gekko said:
Hi cremeegg,

You’re thinking about this incorrectly.

The ‘hurdle’ is circa 1.625% after-tax because interest on rental income is tax deductible.

(I’m assuming that the person is a higher-rate tax payer).

Say I owe €100,000 on my home mortgage at 3.25% and €100,000 on my rental property at 3.25%, plus I have €100,000 on deposit.

The after-tax saving from clearing the home mortgage is 3.25%. The after-tax saving from clearing the investment property mortgage is 1.625%.

Unlikely I’d invest rather than clearing the home mortgage.

I might invest rather than clearing the investment property one.
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I agree.
 
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