Equity release to pay off second mortgage

M

Mr Curious

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Hi,

Grateful for any thoughts on the following.

I have a house in Dublin that is worth 375k conservatively, with about 110k left on the mortgage. The mortgage rate is 2.75% or similar with AIB. This is my principal primary residence.

My partner and I jointly own a property outside Dublin (both on mortgage) which we intend to move to in the the longer term, with an outstanding loan of 190k on the property. It is her principal primary residence (we will be getting married in the near future). The mortgage rate is 3% with AIB. She lives there full time.

What I would like to do is release equity from the Dublin house, say 190k, to pay off the second mortgage. This would bring the LTV for the Dublin house to <=80% (300k). I can cover the outstanding loan on my own salary alone.

My reason for wanting to do this is that we will be based in Dublin for a few years when married (she will be moving up), and I will most likely have to work in Dublin longer term which means I will need a place to stay in Dublin for a few nights midweek potentially. The additional benefit is that the mortgage interest can be offset against the rental income of the other rooms I plan to rent out when we are not living there. We will leave Dublin full time in approximately 5 years time (or so the plan is).

I spoke with my bank manager in AIB briefly, who said they don't do equity release.

If I switch banks would they allow me to top up the Dublin mortgage to clear the 2nd house mortgage?

Thanks
 
Mr Curious said:
The additional benefit is that the mortgage interest can be offset against the rental income of the other rooms I plan to rent out when we are not living there.
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I'm not sure this is correct. Which seems to be the driver behind all this.
 
Wait a second. Which property will be rented when you both are in Dublin for 5 years?
 
My interpretation of the Revenue laws is that to remortgage a property for the purpose of immediately transferring interest payments is not in the spirit of the law and the interest is not an allowable expense. I would seek Revenue guidance on this in 5 years time, if we move at that time, if we do not decide to stay longer term.

The second property will not be rented in the intervening period. It needs a good deal of work which we're happy to tip away slowly at. We will have no rental income in the next few years as a result.

Even if we can't offset the interest (which is fair enough), I would like to consolidate things to one mortgage if possible as it makes switching mortgage provider etc in time easier, than having to do it across two mortgages. Furthermore, once we are married we can only have one principal primary residence, which will also cause issues with remortgaging existing mortgages (both of which are principle primary at present) or moving to longer term fixed rate mortgages.

Grateful for the thoughts/comments in any case (even counter arguments) as I probably need to do more thinking. I guess I would just like to know which options are potentially viable (i.e. no lender will allow you to do this, which means there's no point considering it).

Thanks
 
If I got this right, you're looking to clear the mortgage on the house outside Dublin now. In the near future, you will both move into the Dublin property and rent out the house outside Dublin. With no mortgage on the house outside Dublin, you cannot claim interest relief there.

After ~5 years, you propose moving out of Dublin and into the other house. At that point you will still have an outstanding mortgage on the Dublin property and can then avail of interest relief, but that's dependent on such reliefs still being available at the time.

Note that after the ~5 years, if you keep a room in the Dublin property to stay in mid-week after moving to the house outside Dublin, you are likely not eligible for any interest relief.

Would you not be better off retaining a mortgage on the property you plan to rent for the foreseeable future so that you can claim the relief? You seem to be going about this in a manner that would eliminate any option for ever claiming interest relief.
 
Leo said:
If I got this right, you're looking to clear the mortgage on the house outside Dublin now. In the near future, you will both move into the Dublin property and rent out the house outside Dublin. With no mortgage on the house outside Dublin, you cannot claim interest relief there.

After ~5 years, you propose moving out of Dublin and into the other house. At that point you will still have an outstanding mortgage on the Dublin property and can then avail of interest relief, but that's dependent on such reliefs still being available at the time.

Note that after the ~5 years, if you keep a room in the Dublin property to stay in mid-week after moving to the house outside Dublin, you are likely not eligible for any interest relief.

Would you not be better off retaining a mortgage on the property you plan to rent for the foreseeable future so that you can claim the relief? You seem to be going about this in a manner that would eliminate any option for ever claiming interest relief.
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Thanks for your comments Leo. I think my wording has been too loose which has caused confusion.

My proposal is to remortgage the Dublin property to clear the mortgage on the proposed long term residence outside Dublin.

When we move to the Dublin property full time it is extremely unlikely we will be renting out the other property for the next few years, it is need of substantial renovation which we are happy to do at our own pace. The property in Dublin will also become our principal primary residence. We will have no rental income for the next few years whatsoever, from either property.

In 5 years time I would propose offsetting the mortgage interest against tax on the rental income (proportionately if Revenue deem that the correct result) from the property in Dublin if we do not sell it, or decide to stay in Dublin long term.

I guess my question more broadly, for whatever purpose, is that if I move mortgage provider to another bank, is there one that would be willing to let me use the equity in the Dublin property to clear the second mortgage?

Thanks
 
Mr Curious said:
I guess my question more broadly, for whatever purpose, is that if I move mortgage provider to another bank, is there one that would be willing to let me use the equity in the Dublin property to clear the second mortgage?
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It's not really something the banks are actively looking to do. However, they don't have a specific policy against it as far as I'm aware.
There are regulatory things they have to comply with - it's technically a debt consolid ation loan, so they have to comply with CPC in that regard.

What you might find is someone like Pepper would do it, but at a higher interest rate. And then, you could switch elsewhere (hopefully).

If banks were open to it, everyone in the country with a holiday home mortgage should be doing it.
 
Firstly you can't offset the interst because you are not using borrowings to purchase or repair the property. So that's a no no.

I think you're thinking way too far ahead on this. In fact I wouldn't change a thing right now. What you are proposing is to borrow more money, when you don't need to.
 
Thanks again for all of your comments.

"Firstly you can't offset the interst because you are not using borrowings to purchase or repair the property. So that's a no no."

Thats what I thought may potentially be the case so thanks for clarifying. Technically I think I could claim the interest on the remaining mortgage for the original house purchase (110k at present) though as that was used to fund the property. But I now understand that it cannot be claimed for a potential top up amount.

I think you're thinking way too far ahead on this. In fact I wouldn't change a thing right now. What you are proposing is to borrow more money, when you don't need to."

The debt level will remain the same, just consolidated in one mortgage (300k).

The benefit of consolidation I guess is also that I could switch the mortgage to Ulsterbank (2.3%) or KBC as opposed to the variable I currently have with AIB (2.75% and 3%), which would potentially be a saving of half a percentage point or at least 1500€ per year.

Once we are married we will have to designate one principal primary residence and thus will have much less leeway in mortgage switching as one will invariably be designated as a buy to let.

Thanks
 
Are both mortgages with AIB? I'm assuming they are, then they *might* consolidate the debt into one mortgage but secured on both properties, that would leave them no worse off security wise than they are now. Then when and if you switch you could just offer the one property to the new lender and just keep the second house out of it altogether.
 
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