Should I change to Principal & Interest Payments

[Gloriosa]

Age: 39
Spouse’s/Partner's age: n/a

Annual gross income from employment or profession: 35,000
Annual gross income of spouse:n/a

Type of employment: e.g. Civil Servant, self-employed -Volunteer programme

In general are you:
(a) spending more than you earn, or
(b) saving? B

Rough estimate of value of home 365,000
Amount outstanding on your mortgage: 358,000
What interest rate are you paying? ECB + .85%
Interest only with TRS has now dropped to under €1000 (not including last cut)

Other borrowings – car loans/personal loans etc
second mortgage
property value €180,000 mortgage o/s €216,000
Interest Only €667pm (not including last cut) rent €900pm
rate ECB plus 1.10%

no personal loans

Do you pay off your full credit card balance each month? YES
If not, what is the balance on your credit card?

Savings and investments:€14,000

Do you have a pension scheme? 3 plans from previous employment, but no contributions made since Oct 08

Do you own any investment or other property? yes see above

Ages of children: none

Life insurance:2 policies, one level term €358,000, one mortgage protection €176,000

I lost my job last year, was earning over €50k basic, but have now dropped to €35k basic in new job, will be no bonus nor overtime etc, both my mortgage instalments have dropped dramatically in recent months, so I'm wondering, should I change my home mortgage repayments from interest only to principle & interest or wait unitl the interest only period is up in 15 months time?

any thoughts please

thanks
Gloriosa

 

[PaddyW]

Re: Should I change to Principle & Interest Payments

There is a stickie on here, can't remember where though, where Brendan points out different toics on investment properties, sticking to interest only on them being one, if I recall properly. Maybe switch to capital and interest payments on your own home, but keep interest only on the investment property.

 

[Galway5]

Re: Should I change to Principle & Interest Payments

A couple of things come to mind here.

1. The investment property is worth less than the mortgage outstanding.
2. The mortgage on your home is very close to the value of the home.

Taking the above into account, I would do the maths on what you can afford to pay as a capital and interest mortgage on both properties. I remember seeing the post on this siet about interest only mortgages for investment properties and this is worth a look (do a search on here).

You have savings and don't seem to have other loans.

You have a couple of pensions also. You may be paying tax on the investment property now that the interest rates have dropped and there may be potential for you to pay into a pension to avoid any tax hit that might come as a result of this (do a tax calc and see whether you will have a liability at the end of year).

Hope this is of some help.

 

[Mr DT]

Re: Should I change to Principle & Interest Payments

You should stick with interest only.

But i think you have more pressing things to consider;

1) Currently you owe €574K on a salary of €37k (including profit from rent). Thats 15X salary.
2) Property asset are worth less than the debt.
3) What do your repayments go up to when the interest only period is over? Will you be able to pay them?

You won't want to hear this but you seem to have far too much debt for your assets and income. You should consider increasing your income or selling one of the properties.

 

[Gloriosa]

Re: Should I change to Principle & Interest Payments

thanks, I appreciate the replies, all salary multiples were done when I had a better paying job, I have excellent tax breaks for the next 10 years on the new PDH, its Section 23, so my net salary is extremely high, I only pay approx €170pm of my salary on tax/prsi, so I was thinking of putting the extra €470 pm into a savings account and each year pay this off the principle of my PDH mortgage, but still not sure based on low interest rates now whether to move to Principle & Interest now or wait it out for 15 months, will do some calculations and make my decisions, thanks again

 

[Bronte]

Re: Should I change to Principle & Interest Payments

You should pay back as much of your home mortgage as possible. The opposite for the rental property. Based on your LTV's you really need to start getting the mortgage on your home down. Is there a penalty for breaking the interest only period. Can you clarify exactly what type of insurance you have on each house and the monthly cost.

 

[Gloriosa]

Re: Should I change to Principle & Interest Payments

Hi Bronte

there is no penalty to change from interest only, am in a tracker variable, I have level term for €358k costing €88pm (was rated) and MP for €178k costing €46pm (was rated)