Lump sum off home mortgage or investment property

sceach

Registered User
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68
Hi

I have an “investment” property (former home) and I’ve been debating paying a lump sum off the mortgage.

I pay approx. €12,000 interest per year on the repayments, 75% of which is tax deductible against rental income.

Is it too simplistic to think that by reducing my interest bill I’ll pay more tax on rental income and so better to pay lump sum off home mortgage?

I have a very small mortgage on my new home and low loan to value. Would it make more sense to pay down home mortgage or try reduce LTV on the investment property?


The numbers are:

Investment Property

·Loan balance €320k @3.8% 20 years remaining rent received €1650 per month

·Value, approx. €360k


Home

·Loan balance €150k @3.65% 24 years remaining

·Value circa €450k

Thanks
 
You are paying interest on your home loan at 3.65% per annum.

You are paying net interest on your buy to let of

Gross interest 3.8%
Allowed for tax purposes: 2.85%
Tax relief@50% = 1.4%
Net interest cost: 2.4%

So the net interest on your home loan is much higher, so you should pay it off first.

Why are you paying 3.65% on your home loan?
With an LTV of less than 50%, you should switch to KBC and get a rate of 3% with €3,000 cash back.

Even at that rate, you should pay down the home loan.

Brendan
 
Other considerations

The investment property does not sound like a very good investment, so you should probably sell it and use the net proceeds to pay down your home loan further.

The LTV on your investment property is high at 89%. If prices fall, you could go into negative equity, which would make selling it more complicated. So if you do consider selling it, sell it first before paying down the cash off your home loan. Once it's sold, then you should pay down your home loan.

Brendan
 
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