I have a property rented out and was looking to reduce the tax I pay on the income. I was thinking if I shortened the time of the mortgage by x amount of years in which it would increase my monthly payments in which I would think that the interest which increase which I could of set 75% off my yearly tax bill.Any guidance on this?
Mortgage Interest on rental
- Thread starter sidb
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As far as I know it doesn't work like that but I'm open to correction
If you shorten the years you take more money off capital, the interest you pay remains the same.
E.g if you owe 150,000 @ 3% over 20 years you pay the same interest if you have 150,000 over 10 years you are just taking more off capital.
If interest is 375euro montly over the 20 years it is still 375 over the 10 years. Your repayments will just be higher over the 10 years but everything you pay over 375euro comes off capital.
And to my knowledge you can only offset the interest of repayments on tax not the capital
If your way was true everyone would be at it
If you shorten the years you take more money off capital, the interest you pay remains the same.
E.g if you owe 150,000 @ 3% over 20 years you pay the same interest if you have 150,000 over 10 years you are just taking more off capital.
If interest is 375euro montly over the 20 years it is still 375 over the 10 years. Your repayments will just be higher over the 10 years but everything you pay over 375euro comes off capital.
And to my knowledge you can only offset the interest of repayments on tax not the capital
If your way was true everyone would be at it
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I imagine let's say you pay 3% a year on 10000 but if I double my payments than I would be paying 3% on 20000 a year which would increase the capital I pay but would it also increase the interest I pay each year so I have more levage to offset on tax at 75% of the interest. Over all I know you pay less but trying to look for ways to reduce tax bill or is it you would be able to offset more in tax on early years but later on there would be less option to offset tax on interest.
Unfortunately,you appear to have little understanding of how a loan(mortgage is a secured loan) works.
Interest is charged daily on the cleared balance(not on the payment).
So if you pay twice as much,your balance and therefore your interest bill are reducing much quicker.
(Think about it.if loans worked like you are saying then if you only paid €1 a year then you'd only pay 3c in interest !)
Edit:the second part of your reply is true in that you get most of the interest relief in the early years of a mortgage simply because you owe more.
Interest is charged daily on the cleared balance(not on the payment).
So if you pay twice as much,your balance and therefore your interest bill are reducing much quicker.
(Think about it.if loans worked like you are saying then if you only paid €1 a year then you'd only pay 3c in interest !)
Edit:the second part of your reply is true in that you get most of the interest relief in the early years of a mortgage simply because you owe more.
So true, for us all.
moneymakeover
Registered User
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If you don't pay any capital your interest repayment will remain constant over the years
So you will get the tax relief long into the future
So you will get the tax relief long into the future