Interest only mortgage

[jonnyhotspur]

Congratulations on the excellent site. Any advice would be greatly appreciated.

My wife and I own a semi d in Lucan valued at €360k and owe €120K on it. (15 years left on mortgage at 3.39%).
We own a property in Bulgaria valued at €80K and owe €50k on it.(15 years left on mortgage at 3.39%).

We are thinking about moving to a 4 bed house in Lucan for about €450K and renting out the semi d. We both have permanent/pensionable jobs with a combined salary of €130K. We have about €40K in savings to cover stamp duty and fees.

When I rent out the old house can I still claim interest relief on the mortgage? If so would it be better to increase the term of this mortgage and convert to "interest only" in order to maximise interest relief? This would also reduce the monthly payment and allow for slack rental periods.

Would it make sense to use equity release in the first house to keep the amount that we need to borrow for the new house to a minimum?

Thanks
jonny

 

[ClubMan]

When I rent out the old house can I still claim interest relief on the mortgage?

You can only claim owner occupier mortgage interest relief on a mortgage used to buy or renovate one's PPR (Principal Private Residence). You cannot claim it on a mortgage used to buy an investment property although you can offset interest on such a loan against rental income as an allowable expense. Note that it's not necessarily the property on which the mortgage is secured but what the money is used for which determines whether or not mortgage interest tax relief applies (e.g. a mortgage or top-up secured on a PPR and used to buy an investment property would not qualify for mortgage interest relief).

If so would it be better to increase the term of this mortgage and convert to "interest only" in order to maximise interest relief? This would also reduce the monthly payment and allow for slack rental periods.

Interest only mortgages are indeed often suitable for investment properties as you outline.

Would it make sense to use equity release in the first house to keep the amount that we need to borrow for the new house to a minimum?

An equity release is a loan so you will surely be borrowing the same amount anyway?

 

[jonnyhotspur]

Thanks ClubMan. Your reply and the link to Brendans words are very helpful.