Over paying mortgage on investment property

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legallady

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Hi everyone

I was wondering what you thought of over paying on an investment property?would I be better off saving this money?I have a good tracker rate (ecb+1.1)but I'm in negative equity to the tune of about 100k.I'm not talking about a large over payment.it will probably amount to around an extra months payment a year.some people have advised while the interest rate is low I should be trying to make a dent in the negative equity.however others have advised never to over pay an investment property.the property is in a good Dublin city centre location and I've never had a problem renting it.

Thanks!
 
If it was me, and assuming the rent is paying the mortgage I would choose to save the money. Having the extra cash in the bank gives you flexibility and choices.

Paying off extra off the investment mortgage will reduce the mortgage term but you have to decide how important that is to you.
 
It is difficult to see what the point would be unless of course you want to reduce your interest bill. However, most of the interest is tax deductible, at least for now. If the rent is covering the mortgage, why not save the extra you can afford for covering repairs or vacant weeks, if they arise. If you pay down the principal now, you will only get that back if you sell at a future date (assumimng the neg equity resolves itself over time) The amount you will have paid down the principal by will come back to you but will be worth a lot less at that future sale date. Slim
 
Do you have any tax liabilities? With such a low interest rate and high occupancy I would guess that your rental income exceeds 75% of your mortgage interest. (+NPPR tax)

Before paying extra against the mortgage I'd ensure you have no unforseen tax liabilities. Once you put the money into the mortgage you'll find it hard, if not impossible, to get it out whilst you're still in a position of negative equity.

By the same token I'd also be using the excess rental income to create your own sink fund for the property. Cash flow is hard to maintain in the current environment, and if for whatever reason you can't rent the place for a few months (bad tenant won't leave and trashes apt) you will need something to fall back on. The tax treatment of investment properties may change in the next budget or your own personal circumstances may change.

I'd only reduce the amount outstanding on the mortgage once you had those bases covered.
 
Howitzer said:
Do you have any tax liabilities? With such a low interest rate and high occupancy I would guess that your rental income exceeds 75% of your mortgage interest. (+NPPR tax)
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The NPPR charge is not deductible.

Also, what relevance does 75% of the mortgage interest have?
 
Pat Bateman said:
The NPPR charge is not deductible.

Also, what relevance does 75% of the mortgage interest have?
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Because only 75% of mortage interest can be offset against rental income ....

And the NPPR is another tax liability ....

I was listing potential tax liablities for which the OP may need contingency funds.
 
Fair enough...apologies, I thought you were implying that it was deductible.

Rumour has it that the 75% restriction introduced during 2009 will be reversed BTW (here's hoping!).

I agree with your analysis. Tying up spare funds by overpaying on this tracker mortgage would be unwise.
 
I did a key post on this topic.

http://www.askaboutmoney.com/showthread.php?t=101819

If you have a cheap tracker on your home, you should not be paying off the mortgage.

The net cost to you of having 100k of borrowings is

You will pay 2,100 in gross interest

You can claim tax relief on 1575 (2100 @75%)
So you get tax "back" of or around 50%
which is 787

Net cost to you is around €1,300 or 1.3%

You only have to find a gross deposit rate of 1.7% to match that.

so you are better off putting your money on deposit, as long as the deposit is safe.

Brendan
 
Or paying off your credit card or any other higher percentage loans you may have
 
Thanks a million for all your contributions.you've confirmed the option I was thinking made most sense.I don't have any other borrowings so I am going to save the extra funds to cover redecorations/vacancy etc in the future.thanks again for the contributions
 
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