# Rental Property Mortgage - Interest Only?



## infinity (1 Nov 2010)

I have 2 mortgages with my bank. My home loan and a rental property.

home mortgage, 220k, ECB +0.6
rental mortgage, 100k, ECB +0.8

I've had the rental mortgage on interest only for the past 3 years. Last year when the interest only period ran out I contacted the bank, sent them a letter requesting a 12 month extension and it was done no problem.

This time when I went to extend it again the bank are looking for lots more info and have requested me to fill out a "Reduced Mortgage Repayments Request" form.

I'm not sure how to approach this - I think I'll drop in and chat with them. Has anyone else been in the same situation?

I can afford to make capital repayments but I'm getting the money so cheap it makes sense to save it or use it to fund a car. I don't want to tell the bank that! I also don't want to fill out the form in such a way that makes me look like I can't really afford the mortgage. Just in case it puts a black mark against either mortgage? Would this happen?

The form looks for your income plus rental income and outgoings like mortgages (as above), loans (none), childcare.
Also have to list assets (some savings).

Filling out just those figures makes it look like I'm pretty flush - which I'm not!
(Utilities, grocery, cars, insurance, etc,etc).

Suggestions?

The options I have are (I think)
a) fill out the form and probably get refused and have to make capital repayments.
b)* fill out the form in such a way that makes money looks tight. possible risk of causing a flag to be raised on both mortgages? (am I paranoid?)
c) offer to make increased payments on my home mortgage (better for the bank as I'm paying down the cheaper mortgage).

The budget will probably do away with tax relief on interest anyway so it will probably make no difference next month!

Thanks

* I don't mind being a bit frugal with the truth with the banks - they've made it an art!!


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## Knuttell (2 Nov 2010)

Was is a similar situation with several RIP mortgages,I would have preferred to stay on IO for a further 6 months but Bank would not allow me,however I had not borrowed beyond my ability to repay cap and interest ie I made sure from the outset that i could repay the loans in quite stressed interest rate environment etc without causing me problems...so I started repaying cap also,glad I did though as I have now paid down a good bit off the money I borrowed,face it you are gonna have to repay the money at some stage,theres no time like the present esp at such a low interest rates.

As for banks,words would not do justice to the contempt I hold them in.


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## sandymount (2 Nov 2010)

The bank is losing money on the tracker. I am surprised that they extended it last year. If they get you to pay down capital they are losing less money.


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## infinity (2 Nov 2010)

sandymount said:


> The bank is losing money on the tracker. I am surprised that they extended it last year. If they get you to pay down capital they are losing less money.



Yes - I am aware of that, I was surprised last year too - but it was more or less a formality. A quick one line letter was all that was needed.

To make matters worse - I am rubbing the banks nose in it a little bit as I have the savings account with them so they know exactly how much I am costing them!

I am leaning towards option (c) above? The overall amount that I owe the bank will be going down by the same rate, but from a tax point of view it would be better to leave the rental mortgage on IO.


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## Steve D (2 Nov 2010)

> I can afford to make capital repayments but I'm getting the money so cheap it makes sense to save it or use it to fund a car/QUOTE]
> 
> Get your priorities right......why don't you just go ahead and buy two big expensive cars. That sounds a lot more important than paying off a mortgage!


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## infinity (2 Nov 2010)

Steve D said:


> Get your priorities right......why don't you just go ahead and buy two big expensive cars. That sounds a lot more important than paying off a mortgage!



woah there steve! making a few assumptions there!

I have 7 year old car that I'll need to change next year (growing family). Does it not make more sense to fund it using a 1.6% loan than borrow from the same bank @ 14%?

looks like I am getting my priorities right?

have you any advice to offer on the original question or just some smart ass comments?


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## gaius (5 Nov 2010)

infinity said:


> woah there steve! making a few assumptions there!
> 
> I have 7 year old car that I'll need to change next year (growing family). *Does it not make more sense to fund it using a 1.6% loan than borrow from the same bank @ 14%?*
> 
> ...


Your car loan is short term. The mortgage is long term. Do the sums and you'll find that the car loan may well work out cheaper in the long run.

Also, that tracker is worth gold. I wouldn't do anything to endanger it if I were you.


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## murphaph (5 Nov 2010)

Some banks allow top up mortgages to be treated as a separate loan with its own timeline (I know UB used to). If that is possible then it makes sense to borrow the money for the car as a top up over the same or a shorter period as you would for a personal loan. If it's simply added to your mortgage over say 20 years, then it may well be more expensive than an unsecured personal loan at 14% (as the poster above rightly states).


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## Trustmeh (9 Nov 2010)

infinity said:


> woah there steve! making a few assumptions there!
> have you any advice to offer on the original question or just some smart ass comments?


 
Be prepared for similar smart ass remarks from the banking staff when you ring up to discuss your options. The woman I dealt with told me "it was no longer a lifestyle choice". I nearly spit out my earl grey!

The bank won't give you interest only im afraid. The form is just the first hurdle. Fill it out honestly and they will refuse. Try and lie and claim you are unable to afford it and you will lose the tracker and probably have to have counseling from them. 

As much as IO makes sense for a good investment strategy, unfortunately it's not an option right now. But I bet your enquiry will be used by Morgan Kelly to count as one of the many distressed borrowers in Ireland.


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## infinity (11 Nov 2010)

I went and met with the bank a few days ago and had a surprisingly frank discussion with the person who I originally took the mortgages out with 4 years ago.
Oh how times have changed!
4 years ago I did my sums and worked out what I thought I could afford to borrow and approached the bank. They practically fell over themselves trying to get me to add in extra money for car, furniture,etc. I resisted and managed to pay for furnishings out of savings and bit by bit over the last few years.
While they didn't tell me to lie - I was encouraged to bump up my income with any overtime or bonuses I might receive. The house was also "overvalued" to allow the LTV fall into the most beneficial category. Again it was a nod and a wink!

Anyway - this time it was the complete opposite. Apparently the form I was sent out is a standard form sent to everyone looking for "reduced payments" or interest only periods.
I basically had to fill out the form as pessimistically as possible. I got her to fill out the reason I wanted to keep the loan on IO (maximise tax relief).
I had to take a 10% pay cut this year - I filled this in on the form - she suggested I say that another 10% reduction is likely in 2011 (it's not, hopefully).
There were a few other questions that she helped me answer in the best way for "head office". 
She reckons head office will get back to me 2 weeks and even if I don't get the outcome I'm hoping for there will still be some room for haggling. I'll post up the outcome when I hear more.

So, *Trustmeh*, you are right - I'm included in Morgan Kelly's list now!

I was equally responsible for pumping up the bank's balance sheet 4 years ago when I borrowed 220k on a 585k house (bank valuation). At the time it was probably worth nearer 485k. Now? 300k - maybe less?

So as I read somewhere recently - things probably weren't as good as we all thought they were 4 years ago, but probably aren't as bad as we think they are now!


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## infinity (11 Nov 2010)

gaius said:


> Your car loan is short term. The mortgage is long term. Do the sums and you'll find that the car loan may well work out cheaper in the long run.
> 
> Also, that tracker is worth gold. I wouldn't do anything to endanger it if I were you.



If I was to use the money to fund a car loan I would only do so for a normal car loan term (24 - 36 months).

Some rough calculations: €15,000 over 36months.
@1.9% = €440 total interest 
@14% =  €3,450 total interest

The €3,000 difference could be paid straight off the principal at the end of the term if I'm disciplined enough to count it as a saving and to keep it one side.

I am treading very carefully to keep the tracker - to paraphrase Charlton Heston "I'll give you my tracker when you take it from my cold, dead hands" !


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## SPC100 (19 Nov 2010)

Hi Infinity, any word back from the bank?


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## infinity (22 Nov 2010)

SPC100 said:


> Hi Infinity, any word back from the bank?



No - nothing yet. I'll ring them later in the week - I'm sure they are overwhelmed with similar requests.


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## DonKing (22 Nov 2010)

Infinity,

Do you mind me asking which bank you have your mortgages with?

Thanks


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## Bronte (23 Nov 2010)

When is the term of your interest only mortgage up and how do you propose to pay back the capital.  Presumable with such a low mortgage, but depending on the property, your rent would cover both capital and interest?


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## infinity (24 Nov 2010)

Bronte said:


> When is the term of your interest only mortgage up and how do you propose to pay back the capital.  Presumable with such a low mortgage, but depending on the property, your rent would cover both capital and interest?



14 years left, at current interest rates, would work out at: Interest €150 + capital repayment €520.

Rent covers it (as long as it is rented - touch wood, fingers crossed, etc).

With all the crap that is hitting the fan at the moment it looks like the tax relief for the interest will be cut completely over the next couple of budgets so all of this post is probably a moot point now!


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## Bronte (24 Nov 2010)

But you never answered how you're going to repay it.  My advice is always to pay the capital and interest.  Good news that your rent covers both interest and capital   

Watch out though as I am sure that rent allowance will be lowered in the budget and this will have a knock on effect downwards on rents.


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## infinity (24 Nov 2010)

Bronte said:


> But you never answered how you're going to repay it.



Plan was to repay it AFTER my home loan was repaid and not at the same time as it.


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## SPC100 (11 Mar 2011)

Did they agree to an extension in the end?


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## Slim (11 Mar 2011)

Bronte said:


> But you never answered how you're going to repay it. My advice is always to pay the capital and interest..


 
Why do you advise that Bronte? Surely, in the case of a RIP, it is better to keep your own money in other savings accounts and try to own as little equity in the RIP as possible, of course as long as you are not in negative equity. slim


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## Bronte (11 Mar 2011)

The reason I advise it is that very few people actually put the money aside.  In the OP's case he mentioned purchasing a car (! depreciating asset) instead of making capital repayments.  

Anyone who is canny enough and plays the tax system well would in general be going interest only and have other means of paying back the capital, wouldn't think those are in general the type of people who ask questions on AAM.


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## Slim (11 Mar 2011)

Bronte said:


> The reason I advise it is that very few people actually put the money aside. In the OP's case he mentioned purchasing a car (! depreciating asset) instead of making capital repayments.
> 
> Anyone who is canny enough and plays the tax system well would in general be going interest only and have other means of paying back the capital, wouldn't think those are in general the type of people who ask questions on AAM.


 
I understand what you mean now. I am relying on the sale of my RIP to pay back the mortgage, maybe even refund me my equity. Doesn't seem likely in the short term. Slim


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## Durand (12 May 2011)

Hi,
Bank is losing money on the tracker. I am surprised, that they extended it last year. If they get you to pay down capital they are losing less money.


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