Switching from interest only mortgage

T

theoaks

Registered User
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Last year I bought an investment property and took out an interest only mortgage for the first year so that I would be able to make the repayments.
I'm wondering at what stage should I consider switching to an annuity mortgage. The rent I'm receiving is covering 90% off the mortgage repayments at present but I'm aware that this will drop over the coming months with further interest rate rises.
The capital to be repayed on the investment property is €152,000,we are on a tracker rate of 4.25% with Perm TSB over 25 years.
 
why not make the odd lump sum payment to reduce the o/s balance whenever you have the spare cash? that way, you are not committed to the higher repayments should you have no tenant. However, if you have interest only mortgage only for the first year, they you have answered the question yourself, in that the higher payments will kick in from month 13 on.
 
Do bear in mind that the mortgage interest is the largest expense that can be deducted from the rental income to reduce your tax liability. If you revert to an annuity mortgage and/or repay lump sums your interest bill will reduce but this may increase your tax liability. If you have any unsecured borrowings (term loans, credit cards, etc) it would be more beneficial to reduce these first, followed by your home mortgage (if applicable) and finally the investment mortgage.

Sarah

www.rea.ie
 
I agree with Sarah. If you've any outstanding loans or a mortgage on your PPR, I'd pay it off first. Your interest rate is high anyway, would you consider switching?
 
I suppose also, your options depend on what you intend to do with the investment property in the short term / long term. For example, if you intended to sell the property in the short term, there may not be a whole lot of sense in putting yourself under financial pressure in the interim
 
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