Mortgage Interest Relief for Idiots

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Hells_Belle

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This is a completely new concept to me, and I couldn't find an Idiot's Guide to Mortgage Interest Relief, even in the key posts. [broken link removed] is the clearest explanation I could find. [broken link removed] is the best example I could find with maths I could actually follow.

So to make sure I have this right, if I am a married FTB and an idiotic sub-prime borrower with a loan of €110,000 at 6.95% variable and a monthly payment of €680.00, then:

Mortgage of €110K x 0.0695 (my interest rate) = €7645 in interest p/a.
20% of the €7645 interest = €1,529 eligible for mortgage interest relief p/a
€1529/12 = €127.42 per month back on my mortgage payment, every month for 7 years.

Is that correct?

1/ If so, what does one normally do with the money one gets back? Save it? Apply it to the principle? Make bigger payments? Or just treat it as though the mortgage payment is really €553 p/m?

2/ If we refinance with a high-street lender at market rates in 2 or 3 years (which is the plan), do we lose this benefit?

Thanks!
 
Your calculations are almost correct. The actual amount of interest you pay in a year may be slightly less than you calculate because you're paying off some of the capital of the loan each month, but it won't have that big an effect in the first few years.

1/ If you can afford to, it would make sense to use the TRS to pay off your mortgage early. Doing this should improve your chances of switching to a mainstream lender in a couple of years.

2/ No - if you switch lender, you'll still get the benefit of the TRS, although it will be calculated using the lower rate of interest you should then be on and so will presumably be lower.
 
It can be fairly decent alright. You probably get maximum value for it if you are a FTB with a €200,000 mortgage or two FTB's with €400,000. Throw in the rent a room scheme (up to €10,000 p.a. in tax free rent) and it can really reduce the mortgage burden in the early years of home ownership.
 
good exampe above...just have a question on that...does that mean people with interest only mortgages gain most from the use of mortgage interset relief? if so would it then make sense to take out an IO mortgage to benefit most from mortgage interest relief and use the amount of principal you are not paying every month and put this in an account that earns more interest than the cost of the mortgage?
 
kildon said:
good exampe above...just have a question on that...does that mean people with interest only mortgages gain most from the use of mortgage interset relief? if so would it then make sense to take out an IO mortgage to benefit most from mortgage interest relief and use the amount of principal you are not paying every month and put this in an account that earns more interest than the cost of the mortgage?
Click to expand...

You'd need to check if the interest on the savings account net of DIRT tax exceeds the mortgage and continues to do so.
 
It's a toss up. generally deposit rates are lower than mortgage interest rates but due to unusual circumstances at the moment it's almost possible to make a gain by borrowing to deposit.
Example: FTB €200k mortgage, 5% interest, €10k p.a. interest, €2k p.a. interest relief.
Scenario 1: Pay €50k off mortgage:
Reduce mortgage interest by €2.5k but relief falls by €0.5k. Gain €2k p.a.
Scenario 2: Put €50k into a 5% deposit account:
Annual interest €2.5k, dirt tax €0.5k, Gain €2k p.a.
 
Instead of starting a new thread i'd like to reslove my queries regarding MIR here aswell. It really appears to be like explaining the offside rule

Im married, both earning. Hopefully buying this spring with a loan of 225k, (25k deposit ie 10%), interest for 2009 (assuming 1 jan mortgage) @ 5.35% is €11961 (according to Karl jeacle)

Now this is where i get confused!
Do we get
1) 20% of €11961 ie, €2392 (€199/month)

Or do we somehow double it as were married and get the max €333 /month?
 
€225,000 loan.
Interest on this is 225k x 5.35% = €12037.50
As a married couple you will get 20% relief on up to €20,000.
20% x €12037.50 = €2407.50 per year
Monthly = €200.63

This doesn't take into account new TRS levels from Jan 2009 but the basis for the calculation will remain the same.
 
So with new TRS levels starting in January, that would make TRS of 3009.38 on above example, Norf? Am I right?
 
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Ok, been doing calculations myself. Please have a look at this and tell me if correct.

Mortgage of 96k over 35 years @ 5.24%

So interest = 96k x 5.24% = 5030.40

20% x 5030.40 = 1006.08

1006.08/12 = 83.84

So I make that 83.84 euro per month

But actual amount given is only 77 euro. Missing something here?
 
NorfBank said:
€225,000 loan.
Interest on this is 225k x 5.35% = €12037.50
As a married couple you will get 20% relief on up to €20,000.
20% x €12037.50 = €2407.50 per year
Monthly = €200.63

This doesn't take into account new TRS levels from Jan 2009 but the basis for the calculation will remain the same.
Click to expand...

Thanks for that by the way, i hope my pea brain manages to remember this now!!!
 
PaddyW said:
Ok, been doing calculations myself. Please have a look at this and tell me if correct.

Mortgage of 96k over 35 years @ 5.24%

So interest = 96k x 5.24% = 5030.40

20% x 5030.40 = 1006.08

1006.08/12 = 83.84

So I make that 83.84 euro per month

But actual amount given is only 77 euro. Missing something here?
Click to expand...

Working backwards your mortgage should be €88168 in order to get €77 per month TRS. Check what your exact outstanding sum is.
 
Norf, when I rang them just about two weeks ago, I was told the outstanding sum was just over 95k

Update : Just rang bank and amount outstanding is 95,196.88 as of today.
 
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PaddyW said:
Norf, when I rang them just about two weeks ago, I was told the outstanding sum was just over 95k

Update : Just rang bank and amount outstanding is 95,196.88 as of today.
Click to expand...

Did you ring revenue and explain that you cannot figure out why there is a shortfall in your TRS?
 
I tried ringing them there, but there was a waiting time of 15 minutes. At work so can't wait that long. I will ring them tomorrow though.
 
If your first payment was February, you will not have paid a full year of interest this year. Would this account for it?

(Actually, calculating this out, it comes to ~77 per month over 12 months - did you get a larger initial TRS payment?)
 
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