Pay off tracker before taking out new mortgage for house build

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Muldoon

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I have edited the post and the replies to remove the confusion about the BoI mortgage - Brendan

Personal details:
Age:44
Spouse’s/Partner's age:45
Number and age of children: 2, ages 5 & 6

Income and expenditure:
Annual gross income from employment or profession:120,000
Annual gross income of spouse:6500

Monthly take-home pay: 4000 approx, spouse 3350
Type of employment: Software Industry, Spouse: Primary School Teacher

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

Summary of Assets and Liabilities
Cash of approx. €400k
Company shares : approx. €40k
Buy to Let Property worth €240k with mortgage of €195K remaining

Family home mortgage information
We live in rented property 800 p/m
Other borrowings – car loans/personal loans etc. None
Do you pay off your full credit card balance each month? Yes

Buy to let properties:
2 bed apartment, it was initially our family home for two years.
Value:240000
Rental income per year:16200
Rough annual expenses other than mortgage interest :3500
Lender. PTSB
Interest rate: tracker, ECB + 1.83, currently 5.93
Mortgage of 195000 remaining

Other savings and investments:
Do you have a pension scheme? Yes, I pay 6% of base salary into pension, employer adds another 12%, current value 175000. Spouse has Cornmarket AVCs, pays 240 p/m
Do you own any investment or other property? Just the aforementioned apartment

Other information which might be relevant
Life insurance: No, life assurance via employer. Spouse: No

What specific question do you have or what issues are of concern to you?
We have savings of over 400K scattered across savings accounts and current accounts, earning little interest in all. We plan to build a family home (approx. cost 620K) either at the end of this year or early next year.

We have been informed by our broker that we can avail of a four year fixed rate of 3.65 % at the moment to fund our new build. Our tracker mortgage interest rate has now risen to 5.93, should we use our savings to pay off the buy to let mortgage?

Thanks in advance for any advice
 
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Muldoon said:
Buy to let properties:
2 bed apartment, it was initially our family home for two years.
Value:240000
Rental income per year:16200
Rough annual expenses other than mortgage interest :3500
Lender. PTSB
Interest rate: tracker, ECB + 1.83, currently 5.93
Mortgage of 195000 remaining
Click to expand...

So the first question is whether or not you should keep the buy to let.

Your income is €16,000
The interest you are currently paying is €12,000
Expenses €3,500
So you are making no profit on it.


Is it really worth the hassle?
I would say sell it and you have another €45k in the pot for your building costs.
 
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So summary

1) I think you should sell your buy to let - simplify your lives and focus on the building
2) If you don't sell hold onto your tracker.
3) Decide now to sell your company shares but you might not actually sell them until you need the money for the project.
 
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We will need a mortgage for the cost of the build minus whatever percentage of our savings we use to finance it.


Our broker has stated that he is looking at Bank of Ireland for the 3.65% for the new build

Concerning the apartment, it was bought in 2006 using a 35 year mortgage of 310000 and we lived in it for two years. Our lender PTSB does not know it is rented out

I like the idea of selling the apartment but up until now was looking at it as a somewhat appreciating asset that I am receiving assistance (from the tenant) with in paying the load off. Maybe that is not how I should be looking at it

The 3500 expenses each year is a rough figure, some years it is lower. This is made up of yearly management fees that have grown to 1700 euro, a management agent fee that we only pay when the source new tenants and other maintenance related expenses. We have been lucky so far in that besides boiler servicing and repair, and replacement of two large appliances we have not been hit with major refurbishment costs but the apartment may need more than its yearly freshen up soon

I hope this answers any questions you had. I would appreciate it if you could let me know if these additional details changes the advice you have offered

Thanks
 
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Muldoon said:
I hope this answers any questions you had. I would appreciate it if you could let me know if these additional details changes the advice you have offered
Click to expand...
You didn't address this point:
Luternau said:
No mention of income tax as an expense (just 16200 rent and 3500 expenses, not including interest, which up to mid 2022, would have been very low. Is there exposure.
Click to expand...
As @Luternau suggests, if there's an outstanding rental income tax liability here then you'll need to factor that into your budgeting. Ditto for any CGT liability on the sale of the apartment.
 
@ClubMan
There won't be CGT if they bought at 320k and it's value is currently €240k.

@Muldoon
Some questions
Are you up to date on income tax / other things like NPPR charge applicable 2009/2013 for the rental.

How do you plan on dealing with the apartment loan when you take out a second loan for new build?

For the next few years of high interest rates you are not going to make much or any profit on the rental. Your interest is almost €12k now per 12months, up from about €4k (to mid-2022).

With estimated costs of €3,500, and your capital repayments, this gives you no net profit. You also have a tax bill of a couple of hundred euro on top. (approx. €300). So it's currently costing you money, not generating income for you. An unknown variable is the value of the property could increase, or fall in coming years.
As it stands, with plans to build a new homw and all the costs associated, I would not be keeping the rental for the likely return over the next few years.
 
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ClubMan said:
You didn't address this point:

As @Luternau suggests, if there's an outstanding rental income tax liability here then you'll need to factor that into your budgeting. Ditto for any CGT liability on the sale of the apartment.
Click to expand...

Hi @ClubMan, apologies I wasn't exactly sure what you were asking (due to my own ignorance). We are up to date with income tax, we submit returns each year. Please let me know if that doesn't answer your question
Luternau said:
@ClubMan
There won't be CGT if they bourg at 320k and it's value is (currently) stated at 240k.

@Muldoon
Some questions
Are you up to date on income tax / other things like NPPR charge applicable 2009/2013 for the rental.

How do you plan on dealing with the apt loan when you take out a second loan for new build?

For the next few years of high interest rates you are not going to make much or any profit on the rental. Your interest is almost €12k now up from about €4k up to mid lädt Year.

With stimated costs of €3500 and your capital repayments gives you no net profit after all cost. You also have a tax bill of a couple of hundred euro on top. (approx. €300). So it's currently costing you money, not generating income for you. An unknown variable is the value of the property could increase, or fall in coming years.
As it stands, with plans to build a new homw and all the costs associated, I would not be keeping the rental for the likely return over the next few years.
Click to expand...
Hi @Luternau, We are up to date with income tax returns and NPPR.

Concerning the apt loan we were considering just keeping the PTSB tracker going unchanged and taking out a second mortgage with BOI, partially in the hope that interest rates would come back down a little and of course with the aim of owning a second property at the end of it all.

Thanks for all the advice, it makes sense, I guess I was somewhat falling into that trap of considering all the money we have sunk into the apartment but understand both your points about what the apartment is doing for us at this time
 
Muldoon said:
We plan to build a family home (approx. cost 620K) either at the end of this year or early next year and are informed by our broker that we can avail of a four year fixed rate of 3.65 % at the moment.
Click to expand...

Yes, but you are not building now. This 3.65% could be higher or lower "at the end of this year or early next year."
 
So the question is if you keep the apartment, should you pay off the mortgage now and borrow to finance the self-build?

You need €620k to build
You have €440k between cash and shares

So you would be borrowing €180k

On balance, if you don't sell, I think you should not repay the mortgage now. The cash will enable you to start the new build without getting a mortgage.

Overall having the cash is very flexible.

It is costing you €195k @5% or about €10k a year - or €5k if you build in about 6 months.
In the context of the big figures you are talking about, it's not material.

Brendan
 
Brendan Burgess said:
Yes, but you are not building now. This 3.65% could be higher or lower "at the end of this year or early next year."
Click to expand...
Yes, it could be be a few months still before we get the mortgage agreed and that interest rate might not be available then
Brendan Burgess said:
So the question is if you keep the apartment, should you pay off the mortgage now and borrow to finance the self-build?
Click to expand...
Based on the advice received here I am considering selling the apartment, but if we don't sell it, then yes, then the question is "if you keep the apartment, should you pay off the mortgage now and borrow to finance the self-build?"

Thanks @Brendan Burgess
 
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