Rising rates

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apd

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Hi,

I bought an investment property for 328,000 euro last year, financed with a 266000 mortgage (tracker 3.15% initiallly over 35 years).

The repayments started at 1048 pm, and i am getting 1050 pm in rent.

Repayments are now 1130 (at 3.6%).By my calculation should rates increase by 1 full percent over the next year the repayments will be 1275 pm. and if they go to 5% it will be 1350 pm.

So i could be subsidizing the mortgage to the tune of 300 euro pm.

My question is : I have 20000 available cash and 20000 late in the year from the SSIA. should I use this money to make a capital repayment on the loan to get the monthly repayments back in line with the rent?

thanks
 
It looks as though you are already in the red..assuming you are paying for the house insurance & service charge annual fees... not to mind an allowance for essential repairs,

What aout provisions if the premises goes unoccupied if there is a changes in tennancy.

Have you worked out how much the monthly repayments would be if you threw some cash at it? Also how much of a margin to do you want to have in there?

ninsaga
 
I have decided to start doing all of my sums based upon a 5% interest rate. if i paid off 40000 euro, then the capital remaining would be 225000 approx and the monthly repayment would be 1,130. 20000 repayment would be 1236 pm.

However I don;t want to pay off more than i have to because then the mortgage interest over the year would not be enough to write off against the rental income and i would have to pay more income tax.

Perhaps i should look at fixed rates now?

Not sure what you meant by "margin"
 
Although it's a possibility, it's pretty unlikely that rates will hit 5% in the near future. The most pessimistic commentators suggest that they might hit 4% by the end of next year. Some recent poor retail and manufacturing data from Germany and Italy has made even that pretty unlikely.

Would it be possible to remortgage to a lower rate now? (has the property appreciated much in the intervening period)
 
Are you on an interest only mortgage? If not I would recommend one. Keep the interest you are paying as high as possible for as long as possible for the very reason you were talking about earlier. The more interest you pay, the less taxable profit you make and thus the less the tax man gets. With an interest only mortgage you will be paying less per month, so you will not be sacrificing your income to pay for this mortgage. With the extra cash you can re invest or save for a rainy day. In my eyes you are looking for the investment to be self sustaining. According to your figures, whether you invest 20,000 or 40,00 after adding on the usual additional costs e.g. management fees, repairs, insurance etc.... your investment does not appear to be self sustaining.
 
there is an identical property 5 doors down now on the market for 380000, where i bought for 328000 in july last. i do not know if that is realistic though, will have to wait to see how long it spends on the market and what the final sale price is.

266000/380000 = 70%. Most banks require lesss than 60% LTV i think. plus the difference is only .15%. The next .25 rate rise will wipe that out.
 
What I mean by Margin is how much as a total or % do you want to have in your hand each month after paying your mortgage...or are you just quite happy to break even (not allowing for mishaps etc) as I already mentioned.

ninsaga
 
I would just like to break even, i don't even mind adding 50-100 pm. but i am very uncomfortable having to add more.
 
I'd stick to paying back a few hundred extra per month. At the end of the day your are acquiring a substantial asset for a few hundred a month.
In time the mortgage repayments will make significants inroads to your principle on an annual basis....I'd keep your spare cash and SSIA and use it to make the monthly repayments etc.
 
landlord said:
The more interest you pay, the less taxable profit you make and thus the less the tax man gets. With an interest only mortgage you will be paying less per month, so you will not be sacrificing your income to pay for this mortgage. With the extra cash you can re invest or save for a rainy day.
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All fine on paper, but he will still have to come up with 266k at some stage. This is a debt that some (like me) will not be confortable carrying over a long period of time.
 
ninsaga said:
It looks as though you are already in the red..assuming you are paying for the house insurance & service charge annual fees... not to mind an allowance for essential repairs,

ninsaga
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Ninsaga - I don't undertsand how you can claim he is already in the red?

Assuming that this is an Irish property that was bought 1 year ago, it's value has probably increased in the region of 15%+ depending on location etc. Therefore it looks like he's already in the black, even accounting for the initial hit of stamp duty.
 
Quite simple..... his incomings (rent received) are less than his outgoings (mortgage + insurance etc)... hence he is in the red.

Try run any business in that mode & see how long you can last.
 
ninsaga said:
Quite simple..... his incomings (rent received) are less than his outgoings (mortgage + insurance etc)... hence he is in the red.

Try run any business in that mode & see how long you can last.
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This isn't a business, it's a capital investment. Most capital investments involve a significant outflow of cash upfront, and in many cases a continuous albeit much smaller outflow in order to maintain the investment. The success of the capital investment is determined by return achieved when the investment is liquidated (i.e. total income less total expenditure). Therefore it's nonsense to refer to day-to-day positive/negative cashflow in the context of the viability of a capital investment.

But even if this was a business, and he choose to wind it up in the morning, he would have made a nice return (i.e. positive cash balance) and hence he is in the black.
 
If you had to put 300E a month to it over 5 yrs 3'600 +18000, even if houses only went up 5% each of those 5 yrs which is a very low rise, works out at around 80K gross take away tax 60,K - 18K + 42K, still a good mark up dont you think, they say this year alone could see more than 15% rise in Dublin, so me thinking out loud you should at least make at a minimum nearly 100K remember your house build up lke compond interest
 
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