From reading other posts, I see that alot of people are asking should they remortgage their house to invest in stocks and shares. My analysis is below. Please comment...
First of all, if you have a variable rate mortgage and the LTV is below 80%, it would probably save you money if you switched to NIB's new LTV mortgage where the price structure is as follows:
A margin of 0.50% applied to first portion of the loan up to 50% LTV
A margin of 0.60% applied to next portion of the loan up to 60% LTV
A margin of 0.80% applied to final portion of the loan up to 80% LTV
Secondly, I wouldn't recommend investing using your mortgage money at all if your LTV is over 50%. Therefore, the only time I'd even consider investing is if my entire mortgage fell into the first of the three categories above. This means that, at current ECB rate of 3.25%, you would need to make 3.75% net to cover your interest. You wouldn't need to factor in inflation because the value of the capital of your loan is being eroded by inflation at the same time as the values of your shares are being eroded by inflation so they cancel each other out.
The above is the most beneficial way of borrowing extra money to invest using your mortgage. However, there is a more efficient means if you simply want to invest your mortgage money monthly instead of paying of the capital.
Lets say your home was mortgaged enough to use up your full TRS allowance - €2,540 for a single person or €5,080 for a married couple.
This would mean that, for example, if your mortgage was at a level that the interest would match these limits, it may be worth converting it to interest only and investing what would have been your mortgage money into a fund such as Quinn Life.
This means that if your mortgaged at NIB's current rate of 3.75% on their new LTV product, it may be worthwhile converting to interest only when your mortgage is at €67,733 for a single person or €135,466 for a married couple.
This means that the interest on the loan is costing 3.75% before TRS is deducted - only 3% after TRS is deducted. Therefore, any return in excess of 3% would be profit. This will not work if you remortgage your home to buy shares as TRS would not be applicable.
This 0.75% may not seem too much of a difference. However, for example, if you had a newborn baby and wanted to save your married couples TRS allownce of €5,080 per year until the baby was 18, the difference in charges alone would be almost €9,000 (or €500 a year on average).
Summary
In order to invest in the stockmarket using borrowed money in the most efficient way possible, my advice would be to transfer your mortgage to the cheapest company available (currently NIB at 3.75% for LTV < 60%) and get your mortgage down to the upper limit needed to qualify for your full TRS limit of €2,540 for a single person or €5,080 for a married couple. This means, at a mortgage rate of 3.75%, get your mortgage down to €67,733 for a single person or €135,466 for a married couple. Then convert it to interest only and invest the money you would have been using to further pay of this capital in the stockmarket. As you will be investing on a monthly basis, it would probably be best to do it via an index tracker such as any of Quinn Life's products. The borrowings are effectively costing you 3% and anything the index tracker makes in excess of this (after tax of course) is profit.
First of all, if you have a variable rate mortgage and the LTV is below 80%, it would probably save you money if you switched to NIB's new LTV mortgage where the price structure is as follows:
A margin of 0.50% applied to first portion of the loan up to 50% LTV
A margin of 0.60% applied to next portion of the loan up to 60% LTV
A margin of 0.80% applied to final portion of the loan up to 80% LTV
Secondly, I wouldn't recommend investing using your mortgage money at all if your LTV is over 50%. Therefore, the only time I'd even consider investing is if my entire mortgage fell into the first of the three categories above. This means that, at current ECB rate of 3.25%, you would need to make 3.75% net to cover your interest. You wouldn't need to factor in inflation because the value of the capital of your loan is being eroded by inflation at the same time as the values of your shares are being eroded by inflation so they cancel each other out.
The above is the most beneficial way of borrowing extra money to invest using your mortgage. However, there is a more efficient means if you simply want to invest your mortgage money monthly instead of paying of the capital.
Lets say your home was mortgaged enough to use up your full TRS allowance - €2,540 for a single person or €5,080 for a married couple.
This would mean that, for example, if your mortgage was at a level that the interest would match these limits, it may be worth converting it to interest only and investing what would have been your mortgage money into a fund such as Quinn Life.
This means that if your mortgaged at NIB's current rate of 3.75% on their new LTV product, it may be worthwhile converting to interest only when your mortgage is at €67,733 for a single person or €135,466 for a married couple.
This means that the interest on the loan is costing 3.75% before TRS is deducted - only 3% after TRS is deducted. Therefore, any return in excess of 3% would be profit. This will not work if you remortgage your home to buy shares as TRS would not be applicable.
This 0.75% may not seem too much of a difference. However, for example, if you had a newborn baby and wanted to save your married couples TRS allownce of €5,080 per year until the baby was 18, the difference in charges alone would be almost €9,000 (or €500 a year on average).
Summary
In order to invest in the stockmarket using borrowed money in the most efficient way possible, my advice would be to transfer your mortgage to the cheapest company available (currently NIB at 3.75% for LTV < 60%) and get your mortgage down to the upper limit needed to qualify for your full TRS limit of €2,540 for a single person or €5,080 for a married couple. This means, at a mortgage rate of 3.75%, get your mortgage down to €67,733 for a single person or €135,466 for a married couple. Then convert it to interest only and invest the money you would have been using to further pay of this capital in the stockmarket. As you will be investing on a monthly basis, it would probably be best to do it via an index tracker such as any of Quinn Life's products. The borrowings are effectively costing you 3% and anything the index tracker makes in excess of this (after tax of course) is profit.