happycamper
Registered User
- Messages
- 2
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.
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.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).
I'm confusedThe 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.
Neither, just teasing out the implications.I'm confused
Are you recommending paying it off?
Or keeping?
Not on a rented property.The interest saving made from paying off the mortgage is an after tax return.
I agree.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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