# Progress report on my purchase of 2 interest only investment properties



## nbc (11 Aug 2005)

Hi all,

Was here a few months ago under 'investor100' which doesn't seem to be working for me now. Anyway Back in April I was in the process of purchasing two 3 bed semis in a large town down the country and I was a little apprehensive to say the least and was looking for advice here. Have to admit most of the comments were pretty cautious generally. Anyway guess it is a big commitment to make and people were rightly looking at the downside.
Anyway purchased both properties for E175,000. One of them had sitting tenants. Thats working out pretty well. Yhey were paying E650 pcm. I told them that if they signed a year lease I would reduce to E625 and sign they did thankfully. That sale included all contents(in fairness none of which was great but the tenants were happy enough with it). Only prob to date was shower which needed to be replaced in the first week. Last month's rent was lodged perfectly on time.
Other house was E175,000 but felt it was worth a few grand more as higher spec generally...kitchen,fireplace were not standard etc and back garden was twice the normal size and south facing. Turns out previous owner rented it for 6 weeks and during this period put an ad on daft and the chap was able to view the house shown around by previous owner which was great. he agreed to move in as soon as the other guy moved out which was 10 days ago. This chap is eastern european, in his 40's and only interested in working hard and saving a few bob in order to buy a house at home eventually. He has 2 mates with him and they are fine. They are paying E650 pcm. 
Overall outgoings are E800 pcm for mortgages(int only) and insurance for both properties. Income is E1275.
Both properties are valued between E185,000 and E190,000 currently going on recent sales and overall am very pleased and glad I made the jump.
Maybe if someone out there has a good idea regarding purchase of a house, good location for renting etc and are apprehensive about it maybe this will give you some encouragement. The most important thing is to research your market well before doing anything and it's important to have some funds available in case renting it takes longer than in my case.
Regards
nbc


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## ClubMan (11 Aug 2005)

nbc said:
			
		

> Was here a few months ago under 'investor100' which doesn't seem to be working for me now.


_investor100 _is not a registered username either here or on the old  platform so perhaps you are mistaken regarding the name under which you previously posted?



> Overall outgoings are E800 pcm for mortgages(int only) and insurance for both properties. Income is E1275.


Have you factored in tax on rental income, maintenance costs, vacancy periods? Seems to me that €1275 - €800 = €475 p.m. may be assessable for tax depending on what other income you have.



> Both properties are valued between E185,000 and E190,000 currently going on recent sales and overall am very pleased and glad I made the jump.


Do you have an "exit price" in mind at which point you will sell up? Or are you prioritising rental income over capital appreciation?


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## RainyDay (11 Aug 2005)

nbc said:
			
		

> They are paying E650 pcm.
> Overall outgoings are E800 pcm for mortgages(int only) and insurance for both properties. Income is E1275.


What about tax?


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## nbc (12 Aug 2005)

Hi clubman. Maybe I am mistaken. It's a few months since I logged on and someone asked me at the time to come back in a couple of months and let everyone know how I got on. My 'exit' timeframe is maybe to wait 10 years and sell one. Hopefully the profit will enable me to pay off the other. And yes I realise that capital appreciation  is not guranteed. However I feel the liklihood that it will occur is much greater than not.

Yearly profit works out at E5,000 aprox. I expect that after expenses I will be liable for maybe E1,500 tax per annum. I'm quite happy to break even or mabe make a couple of hundred per month. Capital appreciation is my major interest.
nbc


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## techman (12 Aug 2005)

nbc,

Could I ask you a few questions?

1. What term did you get on the interest-only mortgages?
2. What APR did you get?
3. Do you find that managing the two properties takes up a lot of your free time?

Thanks,

techman


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## nbc (12 Aug 2005)

Hi techman

Got mortgages through one of the major players in the market. Rate was 3.1% (tracker ECB + 1.1%)
Think there is a small first year discount.
Yes there is some time commitment. I have had to travel down maybe 4 times to meet tenants,purchase furniture etc. However I wouldn't dream of using an agent as they will let anyone into the house as long as they get their few bob.
I have numbers of tradesmen if there are problems etc. I feel it's worth the hassle and at any rate once things settle down I don't feel it will take up too much time.
nbc


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## asdfg (12 Aug 2005)

Stand corrected on this but this is my understanding 

What expenses are you going to deduct from your "yearly profit"

Income                        15,300
Expenses 
Mortgage Int                  9,600
Insurance     Approx           700         

Yearly Profit                   5,000
Other Expenses               1,400

Assessable to Tax say     3,600 

Tax at 42%                   1,500     

Do your other expenses come to 1,400
These may be one off expenses i.e not available next year


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## ClubMan (12 Aug 2005)

nbc said:
			
		

> Hopefully the profit will enable me to pay off the other. And yes I realise that capital appreciation is not guranteed. However I feel the liklihood that it will occur is much greater than not.


What is your contingency plan for the scenario in which the properties do not appreciate in value sufficient to pay off the mortgages and cover your costs (i.e. break even)? Do you have some other means/investments which can be used to cover these? Do you have an annual budget for emergency and ongoing maintenance/repairs?


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## cathybun (12 Aug 2005)

ClubMan said:
			
		

> What is your contingency plan for the scenario in which the properties do not appreciate in value sufficient to pay off the mortgages and cover your costs (i.e. break even)? Do you have some other means/investments which can be used to cover these? Do you have an annual budget for emergency and ongoing maintenance/repairs?


 
If the properties don't appreciate in value, nbc will still only owe the amount he borrowed (ie value - deposit), in which case he will have made a few thousand each year and then be able to sell the properties to pay off the mortgages.  I don't see how he wouldn't have enough to pay the mortgage back.  The only problem would be if they depreciate, as opposed to remaining stagnant.  If this was a real threat, nobody would invest in property.


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## ClubMan (12 Aug 2005)

cathybun said:
			
		

> If this was a real threat, nobody would invest in property.


Perhaps - but falling property values is still an eventuality with a non zero probaility of occurring regardless of what people do in terms of property investment. Don't forget how many people reckoned _eircom _was a sure thing and the only way was up. Property is a market like any other (e.g. the stock market) and prices can go down as well as up based on demand and other factors. I'm just pointing out that such eventualities need to be assessed in terms of their likelyhood and, if necessary, contingency plans put in place to deal with them.


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## onekeano (12 Aug 2005)

nbc - fair play to you, sounds like you did your research and it has paid off. Fully agree with your strategy of getting the tenants yourself rather than using an agency.

Just wondering how much it would have cost to stay away from the interest only mortgage? Personally I don't like that idea, did you think of maybe using the excess (which should grow if rents get even minimal growth) pay off the principal which would provide further insulation from the worst case scenario outlined by Clubman.

Roy


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## ninsaga (12 Aug 2005)

Asa matter of interest..what is the 
....Other Expenses 1,400

ninsaga


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## Eurofan (13 Aug 2005)

cathybun said:
			
		

> I don't see how he wouldn't have enough to pay the mortgage back. The only problem would be if they depreciate, as opposed to remaining stagnant.



Surely with stamp duty, solicitors fees and estate agent fees (when selling) there is going be *have* to be a resonable capital appreciation to pay the mortgage back?, especially since the mortgage is interest only so the principle is not going down.

I'd love to see the OPs figures on that, what kind of value does must he reach for break even? Stagnant prices would obviously cost him.


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## nbc (15 Aug 2005)

Hi again,

I completely forgot to include an extra E120 pcm I pay on a top up on another mortgage(investment property purchased in 1998) as I borrowed 100% and the mortgage company only gave me 85% loan to value. 
I spent aprox E3,000 buying furniture for one of the properties. Capital allowance on this work out at E600 per annum which is tax deductable.The house that was bought fully furnished will prob qualify for some capital allowances too but have to talk to my accountant about that.
Each property needs to rise in value by E12,000 before I make one cent due to legal fees, stamp duty and expected estate agents fees on selling. This has already more or less happened.
Thanks for the words of encouragement to the contributer who thought I had done well. I feel as if some people are looking at all the negatives. I didn't post this reply to gloat or to look for possible flaws in it. I simply thought it may be be helpful to others who are considering something similar.
I feel that E175,000 is a very reasonable price for a 3 bedroom house anywhere. People always need a roof over their heads and rent easily covers the outlay. In 10-15years time E175,000 will be considered very little. 
Come on guys don't be so negative! 
nbc


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## ClubMan (15 Aug 2005)

nbc said:
			
		

> I feel as if some people are looking at all the negatives.
> 
> ...
> 
> Come on guys don't be so negative!


Not at all. When looking at any investment scenario it's necessary to look at the realities which includes both the positives and the negatives. There is no point in posting here and expecting only positive reassurance that you have done the right thing. The advantage of a bulletin board such as this is that you are almost guaranteed constructive and challenging feedback which is ultimately to your benefit if you are open minded enough to take it on board without dismissing it as negative criticism.

_Eurofan's _point above about the need to cover transaction costs through tallies with mine about the need for capital appreciation to at least breakeven. All the positive thinking in the world doesn't obviate the need to crunch the numbers, assess the viability of a venture, have a clear picture of what is necessary for at least a breakeven scenario and have a realistic assessment of the likely future outcome and how this matches one's plans/expectations. One person's negativity is another person's prudence.


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## demoivre (15 Aug 2005)

ClubMan said:
			
		

> Perhaps - but falling property values is still an eventuality with a non zero probaility of occurring regardless of what people do in terms of property investment. Don't forget how many people reckoned _eircom _was a sure thing and the only way was up. Property is a market like any other (e.g. the stock market) and prices can go down as well as up based on demand and other factors. I'm just pointing out that such eventualities need to be assessed in terms of their likelyhood and, if necessary, contingency plans put in place to deal with them.




Since you mention it Clubman I'm always amused at peoples attitude towards the original Eircom flotation - everyone seems to forget that Eircom shares rose quite substantially after flotation so there was  a very good return to be had in a short space of time . Punters didn't bank their profits cause they got greedy! I don't think I have ever heard anyone say " Jeez I was a knob for not selling and taking me profit " . Everyone was baying for the blood of the Eircom directors or it was the big bad market that turned against them! There was ample time for people to sell and make decent money - they just got too greedy and as you rightly said  thought that Eircom shares would only head North ! Welcome to financial markets folks.


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## ClubMan (15 Aug 2005)

demoivre said:
			
		

> I don't think I have ever heard anyone say " Jeez I was a knob for not selling and taking me profit "


I have said it before and I will say it again: I was one of those who was too greedy, didn't sell early on and paid the price. This was totally my own fault and nobody else's. There - happy now?  At least I've managed to write off some of my eircom losses against subsequent capital gains in the meantime. And I don't think that shares are evil as a result of my own mistake.


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## Brendan Burgess (15 Aug 2005)

Hi nbc

I don't think that anyone is being negative or positive. Your case study is interesting. Very few people have given us such detail so it's nice to subject it to analysis. 

It's too early to say whether the investment was good or bad. You won't know until you sell the properties. Well, you'll know before that if properties rise considerably and stay up.

I wouldn't worry too much about tax. Paying tax is a good sign - it means you are making profit. 

It's good to see your investment doing a little bit better than breaking even. I reckon some investors are losing money and hoping to recover it on capital appreciation. It's always a good idea to have a project making money on its trading account, so to speak.

Your annual rental is   15300
allow 10% for vacancies - say 13500

Interest paid                        11,000
Insurance                                 700
Depreciation/replacement of furniture -   1000
Repairs/Decoration                                            500
Private Tenants Registration ? 
Total costs                                     13,300

So your profit will depend on how well you manage the property. If your tenants pay on time and you have no vacancies, then you will make a higher profit. If it's vacant for longer than you expected or if interest rates rise, you will lose money. 

In the very long term prices of property should rise. In the medium term, they are as likely to fall as they are to rise. I am not making a forecast, just setting out the scenarios. 

You have taken a calculated and managable risk. That's what the capitalist system is all about. In the long term, you are about 90% likely to get a return on the effort you put in. In the medium term, I would say it's around 50/50. 

Brendan


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## nbc (15 Aug 2005)

Hi Brandan,

Thanks for your reply. Very reasonable and rational. I agree that in the long term it's going to be hard to lose. Sure there is a chance that I could lose money on it but the amount would be small enough in my opinion. Regarding 50% possibility of losing in the short term I'm not so sure. I strongly believe that 100% mortgages will cause a rise in property values in the short term ie from the start of the autumn season and that I could quite possibly offload both properties next year and easily pocket 20 or 30 grand. However I don't plan to do this.
nbc


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## demoivre (15 Aug 2005)

ClubMan said:
			
		

> I have said it before and I will say it again: I was one of those who was too greedy, didn't sell early on and paid the price. This was totally my own fault and nobody else's. There - happy now?  At least I've managed to write off some of my eircom losses against subsequent capital gains in the meantime. And I don't think that shares are evil as a result of my own mistake.



No I'm not happy cause you still won't admit to being a knob on that occasion. 
Seriously I didn't even know you had been a holder - when you mentioned Eircom it was just a general point that sprung to mind as I remember all too well the talk at the time. Personally took it with a grain of salt that I didn't sell right at the top but very hard to call a top in any market - was happy  anyway with what I did make. Leaving a profit turn in to a loss though , as a lot of people did with Eircom , is inexcusable imo.


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## Eurofan (15 Aug 2005)

Brendan said:
			
		

> Hi nbc
> 
> I don't think that anyone is being negative or positive. Your case study is interesting. Very few people have given us such detail so it's nice to subject it to analysis.



Indeed and thank you nbc for that detail. In fact it's somewhat refreshing (at least on askaboutmoney.com  ) to see someone who _has_ done a reasonable amount of homework before taking the plunge.

Don't be afraid of criticism or the nature of the feedback you'll recieve here since;



			
				Clubman said:
			
		

> One person's negativity is another person's prudence.



(A great quote I must remember in future!  ) I must admit I myself would be quite risk adverse due to the leveraged nature of property and buy-to-let in the current market but that is my own feeling and I hope the investment goes well for you.

One other question though, I'm curious how much of your own time you spend on the property (between tenant issues, maint, etc.)


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## valentine (17 Aug 2005)

NBC 
Thanks for posting this in such detail - most people gloss over the details of how much they paid, how much rent they are getting etc. I am normally too polite to ask! Good luck with it.


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## markowitzman (19 Aug 2005)

NBC
Am a little concerned......
You are going interest only and most of this thread has been concerned with whether the properties will appreciate in 10 years or not.
With respect I think this is going off the main points of which imho there are 2:
Firstly
You are in a positive cashflow situation with this investment which is a key point. Well done........all things being equal provided you take care of tenants and keep the property well maintained you should have good occupancy and continued profits. Great point re 12 month lease...I do it all the time (go under market on rent so as to reduce vacancy rate). All these factors reduce the risk of the investment... I would say worry about these things (as you are obviously from your postings) more than the media stuff of will it go up or down in value..blah ...blah.....Do not be phased into selling a profitable investment AT ANY TIME by the media stuff!
Secondly
http://www.askaboutmoney.com//showthread.php?t=6217 
Brendan in this post details how to run an interest only mortgage in tandem with an equity based investment vehicle. The aim being for the equity investment to outperform the after tax interest rate of 1.9 odd %. I think (maybe I am wrong) that the great risk of interest only is not negative equity...(media...blah...blah!) but rather that the investor does not have the discipline to invest in tandem in the equity based product. 
Brendan in NBC case how much should he invest a month in equity product based on the figures provided?
Ideally he should invest this in pension as tax advantage ++?
Would you consider investing in exchange traded funds like vanguard total stock market fund with a discount broker rather than an actively mangaed product with all that goes with it (underperformance over 15 years+ compared to market and higher charges)?


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## nbc (20 Aug 2005)

Hi Markowitzman,
Many thanks for your comment and interest in my post. In fact I had read brendan's post on int only mortgages quite a while ago and found it very useful. I think everyone who is serious about property investment should read it. Currently my investment is breaking even easily and is in fact makinf a small profit after expenses. Currently I don't have much spare cash floating around to divert into an equity investment. However re reading this article of Brendan's has got me thinking. In 1998 I purchased 2 properties both of which are let. One is valued at E325,000 with mortgage of E78,000(let at E1050 deliberately under market level again). The other is valued at E190,000 with mortgage of E95,000(recent top up for purchase of these 2 int only houses). The mortgages are repayment. Should I change them both immediately to int only and use the extra cash in a more productive fashion?

Also markowitzman I had been thinking of selling the property which has a lot of equity in it in a couple of years time...the boy has done well and its made a few bob and get out while you can(theres always enough for the needy but never enough for the greedy!). I take it this would be a no no in your book?
nbc


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## markowitzman (22 Aug 2005)

For what it is worth I would not sell if let and if sell you have cgt to payetc.......rather could do equity release and invest proceeds as you wish avoiding capital gains on sale. Obviously from your figures you could release sizeable funds. I just wonder if you were to invest this in equity funds etc and go interest only on the mortgages you would probably be laughing in 10-15 years (need this term to reduce volatility risk of funds imho).
Alternatively you could reinvest release into further property (commercial/foreign etc etc)
I am not  an accountant but would be interested in how one computate the amount needed to fund an equity fund to "cover" the capital value of the property on an ongoing basis. I was thinking in terms of either buying etfs myself or doing a monthly payment in to a low cost fund like quinn life products. 
markoman


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## Theo (22 Aug 2005)

Brendan said:
			
		

> Hi nbc
> 
> I don't think that anyone is being negative or positive. Your case study is interesting. Very few people have given us such detail so it's nice to subject it to analysis.
> 
> ...


 
Brendan, any professional property investor will tell you that they make their money the day they buy, and not the day they sell. This is true of other investments. Anybody who invests in property and is unsure whether it is a good or bad one is gambling, pure and simple. This is usually because they do not know why they are doing it in the first place and what they want out of it ie a clear strategy. It seems that many people in Ireland are fitting this category. I have had many deals brought to me by property sourcing companies that make no sense for an investor but are selling like hot cakes to people eager to listen to the sales speak on a brochure.

If you have a plan and a strategy, research and know your market and have a clear exit in mind, this is professional investment. Sounds to me like nbc has done this - well done to you.

t


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## nbc (23 Aug 2005)

Thanks for your comments markowitzman and theo. Much appreciated. I have to say this website is like a mini business school. Whoever had the initial idea stand up and take a bow! So mark you really think I should invest all the capital repayments into some form of equity investment? I have to admit I would be a little bit nervous and as you can see normally I don't mind taking a bit of a gamble. I see your point about doing it over 15 years and this reducing volatility.
Would you simple buy shares in blue chip companies in Ireland/USA(eg buy bank of ireland shares each month with the capital portion of the mortgages) or get a bank to invest tem for you. From what I know(which is very little) they usually charge hefty enough fees for this service. However I don't feel confident enough to make stock market decisions myself. 
nbc


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## ClubMan (23 Aug 2005)

nbc said:
			
		

> Whoever had the initial idea stand up and take a bow!


_Brendan _is your man so! _AAM _is his baby.


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## onekeano (23 Aug 2005)

nbc said:
			
		

> Would you simple buy shares in blue chip companies in Ireland/USA(eg buy bank of ireland shares each month with the capital portion of the mortgages) or get a bank to invest tem for you. From what I know(which is very little) they usually charge hefty enough fees for this service. However I don't feel confident enough to make stock market decisions myself.
> nbc



If you decide to go the equity route I think Quinn Direct offer a good tracker at low cost which might be a good route.

Roy


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## ClubMan (23 Aug 2005)

onekeano said:
			
		

> If you decide to go the equity route I think Quinn Direct offer a good tracker at low cost which might be a good route


Just to clarify - this refers to index tracking unit linked funds and not tracker bonds.


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## Brendan Burgess (23 Aug 2005)

My posting on interest only mortgages seems to have caused some confusion. There is absolutely no need to cover the capital value of the property, or the amount of the mortgage for that matter. 

If you have an investment property, you should aim to have the interest only mortgage for as long as you own the property. You pay off the mortgage only when you sell the property. 

If your overall income exceeds your expenditure by €5,000 a year, what you do with this money is up to you. 

You may choose to spend it on a holiday.

You may choose to invest it in the stock-market. 

You may choose to invest it by paying off your mortgage.

But you should not feel under any obligation to have an amount equal to the capital value of your mortgage.

If the loan to value is very high or if your income is relatively low, you may wish to build up savings and investments to reduce the mortgage interest payments during long periods of vacancies.

We have a natural tendency to want to pay off our borrowings. This makes sense for borrowings for current expenditure or for cars. But it makes no sense for investment property. And in many cases, there is no need to pay off the mortgage on your home. 

Brendan


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## markowitzman (23 Aug 2005)

nbc 
In your case you seem to be very much in property.
By "covering" the capital value of property (or a % thereof) you are achieving two things
1 imho you are giving yourself the chance of outperforming a capital and interest mortgage as per Brendan article
2 also by having an equity fund riding along with the property you are reducing your sector specific risk as you seem over exposed to property. Having the equity fund running in tandem reduces your risk by giving you some diversification which could be a good bet with the way the property bubble is going here! You see if there was a downturn and you were covering part of the capital with equity fund (global etfs for me) your exposure to this downturn is less acute as you have equity fund with different volatility pattern (you hope) to the property market. 
For what it is worth a naked interest only in this climate in my opinion is too risky.
Interest rate bias is up undoubtedly and rent returns are soft to poor.
I think 2 things are fuelling the bubble.........german recession (that is slowly improving) and tax wheeze housing which is on the way out.
Oh am starting to ramble!
If one have a chance to leverage one's returns via property whilst getting diversification and reduce risk by having equity fund running in tandem this is my ideal situation to be honest.
Would like to hear other views on this.


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## nbc (23 Aug 2005)

Cheers onekeano.
 Can I ask something. Quinn direct as far as I know is a company belonging to the concrete king sean quinn. What happens to my investments if the company goes bust? I feel that this would be less likely to happen to bank of Ireland or Irish life? Am I correct?
nbc


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## oysterman (24 Aug 2005)

Brendan said:
			
		

> And in many cases, there is no need to pay off the mortgage on your home.


Okay, so I'll rise to the bait....

Seems to me there are 3 main reasons for paying off your mortgage:

1) _To increase the equity you hold in your home._

Equity is very useful. The more you have the more you'll be able to borrow and the lower the rate you'll have to pay for the privilege.

During a period of house price inflation, the rise in the value of your home will give you increasing equity. But, if we enter a period of zero property inflation (and there is arguably a significant chance of this in the short to medium term given the strength of the market in recent years) new buyers will suffer from high levels of LTV across that period, reducing their financial (and in consequence lifestyle) flexibility. If property values fall, not repaying/not having repaid any of your mortgage will leave you in negative equity and all that such a financial state entails.


2) _To reduce exposure to interest rate rises._

Clearly, the more of your initial borrowings have been repaid, the less costly a rate rise becomes for the borrower. If you doubt this have a play around with our old friend http://www.jeacle.ie/mortgage/eu/. Plug in your own mortgage details and see, particularly through the "Annual table", how a rate rise becomes much less of a problem in the later stages of a repayment mortgage but an interest-only mortgage has no such comforting feature.


3) _To provide for the inevitable fall in income and likely change in income type you'll suffer on retirement._

Interest-only mortgage servicing is analagous to paying rent. I have nothing against rent paying. Smart renters enjoy hassle-free possession of good properties at reasonable cost and a degree of flexibility which is the envy of mortgage burdened "homeowners".

The problem arises on retirement when your income is likely to fall overnight and, critically, a high proportion of your income may become fixed. Suddenly, owning your home becomes a very attractive proposition. Imagine how you'd feel if rents started rising at rates way above rises in your income and you face the likelihood of being unable to afford to pay the rent to stay in your home in x years.

So, if you are going to decide not to pay off your mortgage early on, make sure you will have the means to pay off the capital sum owed on retirement.


So what are the advantages arising from not paying off the mortgage on your home? Tax relief on mortgage interest? Opportunity cost of repayments? I can see these points but can't see how these outweigh the arguments in favour of repayment for the average non-entrepreunerial type of borrower.


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## Murt10 (24 Aug 2005)

ClubMan said:
			
		

> I have said it before and I will say it again: I was one of those who was too greedy, didn't sell early on and paid the price. This was totally my own fault and nobody else's. There - happy now?  .




Clubman

I was lucky enough to read Moneybags in The Pheonix prior to the flotation. He crunched the numbers and called every hop of the ball in advance for Eircom. Vastly overstaffed in the number of employees per line realtive to other telecom companies.  He stated that the offer would be heavily oversubscribed by the small investor, and that the Government would support the price for a period after flotation so that people who wanted a quick exit could do so without losing money. It was their first flotation and they wanted it to be a success. At the time there were talks of other ones following. Finally he advised to borrow as much as you could and then get out quick.

Just after the flotation he recommended buying First Active which I did and lost my shirt on them. There were strong rumours at the time that they were going to be taken over (by Anglo Irish I think). However if I had kept my nerve and not sold out I would have made a very healthy profit. The benefit of hindsight 

Since then he has also given some other tips that were also spot on and is not afraid to give a sell recommendation. Also worth reading in the Phenoix is the Diary of the Northside Taoiseach.


Murt


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## RainyDay (24 Aug 2005)

oysterman said:
			
		

> Seems to me there are 3 main reasons for paying off your mortgage:


Plus one more - security for a family in case of redundancy, illness etc.


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## Brendan Burgess (24 Aug 2005)

Let me make it very clear that I said that in _many _cases there is no need to pay off the mortgage on your home. Not in all cases. 

I have also stressed on many occasions, that a person's first financial goal should be to buy their home and their second financial goal should be to get their mortgage down to a reasonable level.  I think that I have suggested a rough rule of thumb of a mortgage of 50% home to value and no more than twice your salary. 

At that level, you should see your mortgage as part of your overall financial position. You should not simply see is as taking from the value of your home. 

If you have a surplus of income over expenditure, after paying the interest costs, then you face two major decisions.

The first decision is whether to spend the excess or save it. That depends on many factors. A single person with lots of surplus income may choose to save it. A married couple with children may choose to spend it. 

If I do choose to save it, I can pay off the mortgage or invest it. Paying off the mortgage is the safest for the most of the reasons already outlined. But many people are taking a very justifiable and calculated risk to invest their excess in buying shares or another property rather than paying off their mortgage.  I will stress again, that this should only be done after the mortgage on the home is at a comfortable level. 

Many people are making the mistake of remortgaging their homes to buy investment properties without having the comfort of 50% equity and very high salaries. They will come a cropper if interest rates rise, property prices fall and rental incomes fall.

Brendan


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## oysterman (25 Aug 2005)

Excellent post, Brendan.

And yes, I have heard you on the wireless suggesting that the financial priority for many people in Ireland today should be to get their mortgages down to a manageable level.

I certainly share your concern about the rush to remortgage to purchase investment properties in a deeply uncertain market. But suggesting that it is unwise is advice frequently ignored.....now where did I put that Baltimore share certificate?


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## Brendan Burgess (25 Aug 2005)

Another very clear example where people should try to switch to an interest only mortgage on their home is where they have capacity to contribute to their pension fund. If someone has a comfortable mortgage, it makes huge sense to borrow to invest in a pension. So conversely, it makes no sense to be making monthly capital repayments on their mortgage.

Brendan


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