# Overpay my PPR mortgage or purchase a second investment property



## hakouna (29 Oct 2019)

Age: *47*
Spouse’s/Partner's age: *39*

Annual gross income from employment or profession:* 98K*
Annual gross income of spouse: *85K*

Monthly take-home pay : *9K*

Type of employment: *IT Multinational , Civil Servant*

In general are you:
(a) spending more than you earn, or
(b) saving? *Saving around 3K/month*

Rough estimate of value of home : *590K*
Amount outstanding on your mortgage: *286K ( life of mortgage 11 years)*
What interest rate are you paying?* 2.75% ( Less than 50% LTV)*

Other borrowings – car loans/personal loans etc *Nothing*

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: *Currently I have 80K to invest and 50K for rainy days (illness, kids future college , ..etc)*

Do you have a pension scheme? *Yes, Employer pension since 15 years , I pay 5% he pays 7%. Planing to use AVC once I reach 50 years old. Spouse Civil Servant pension.*

Do you own any investment or other property? *One Investment property ( market value 250K , fully paid off , no mortgage , generates 13K net profit a year). I can not claim mortgage interest relief from my current investment property as the mortgage is fully paid off*

Ages of children: *11 and 8 years old.*

Life insurance: *Yes , Employer Life insurance for myself , not for spouse.*


I am Looking for the best way to invest the 80K now ?
a) Shall I pay off part of my mortgage and reduce the life of my PPR mortgage to maybe 7 years ( direct 2.75% saving, hassle free)
b) I can use the 80K as down payment to purchase a new investment property in a prime area ( city center location , ..etc) . I do not mind to continue being a landlord. This way I can claim mortgage interest relief. Is it now good time to buy a property ?
c) Do something with my pension now ?

Other option is to sell my current investment property to pay off all my PPR mortgage. But I will still have some cash to invest .

ah ... I am fully ignorant when it comes to investing in shares , Gold,....etc.

Thanks in advance for your valuable feedback.


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## Easel (29 Oct 2019)

I would keep it very simple in your very enviable position.

1- Max Pension contributions for your ages
2- Pay balance of savings off your mortgage
3- Reduce rainy day fund as your children are still young and your partner has a very secure job

I would not consider further exposure to Irish property until your mortgage is paid off. Reduce your monthly mortgage repayments rather than reducing the term, this will give you more flexibility if you ever encounter financial pressure.

What is the current value of your pensions?

What does you plan to use AVC once you reach 50 mean?


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## HollowKnight (29 Oct 2019)

Agree with steps 1-3.


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## hakouna (29 Oct 2019)

Thanks Easel for your prompt reply, much appreciated.
Not sure about the value of my pension. I was told I can make pension contribution up to 12%.  Do you reckon I should max it out?
Shall I consider selling my current investment property and buy a new one to benefit from claiming mortgage interest rate ?


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## Sarenco (29 Oct 2019)

It doesn't make any sense to incur a cost just so you can deduct that cost in calculating your taxable profit.

You are currently earning a net yield of around 5% on the rental - roughly 2.5% after-tax.  That's less that your mortgage rate so I'd sell the rental and pay off your mortgage completely.

You have a lot of room to significantly increase your tax-relieved pension contributions.  In your shoes, I would max out your pension contributions for 2018 (you will have to move fast!) and keep maxing out your contributions going forward.

Do you have any say in how your pension is invested?  If you do, I would invest your fund largely (perhaps even 100%) in equity funds and keep any after-tax savings on deposit (or tax-free State Savings Certs).


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## moneymakeover (29 Oct 2019)

If you borrow 170k to own 500k investment property. (Assuming you borrow 170k and add your savings of 80k to buy property 250k)

At 3% you pay €5k interest but it only costs you about 2.5k after tax.

The question is more: is now a good time to invest?
The other question is how much debt you want as you get older and closer to retirement. You might want to be debt free at age 60?

There are concerns ie news that price increases are dropping in Dublin.

The rent pressure zones restricting rent increases.

The uncertainty of Brexit


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## Easel (30 Oct 2019)

hakouna said:


> Thanks Easel for your prompt reply, much appreciated.
> Not sure about the value of my pension. I was told I can make pension contribution up to 12%.  Do you reckon I should max it out?
> Shall I consider selling my current investment property and buy a new one to benefit from claiming mortgage interest rate ?



Yes, I would absolutely max it out. The current tax savings are very favourable. I would check the value of your pensions, careful planning now could bring your potential retirement forward by a number of years.


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## hakouna (30 Oct 2019)

Thanks Sarenco and moneymaker . I will certainly consider increasing ( even max out) my pension contribution. 
I must admit, I need to do a lot of research in relation to increasing my pension contribution, not sure how high I could go ( guess 12%), whether I can reduce it down the road if my circumstances change, and if I have a say in how my pension is invested, any other advise please let me know, thanks in advance. 



Sarenco said:


> You are currently earning a net yield of around 5% on the rental - roughly 2.5% after-tax. That's less that your mortgage rate so I'd sell the rental and pay off your mortgage completely.



The average net profit after-tax in the last 3 years for renting my investment property is around 5.5% , this could go higher if I can claim the interest paid on the mortgage (which is 0 now) , current mortgage interest rate is 2.75%, which could go down to 2.25% if I fix it for 2 years with KBC.

My theory is , "switch over the PPR mortgage's cost" ( interest , insurance,..etc) to an investment mortgage that I can claim from revenue: i.e
1/ Sell the current investment property
2/ Fully pay-off PPR mortgage 
3/ Purchase an investment mortgage that I can claim its interest using the 80K down payment, that way I can increase the net profit after-tax from the investment property.

So I will end-up with max-out the pension contribution, paying-off all PPR mortgage, and one investment property that hopefully generate 6+% after switching the mortgage..

Does that make any financial sense ?

Thanking you for all your input here.


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## Easel (30 Oct 2019)

hakouna said:


> Thanks Sarenco and moneymaker . I will certainly consider increasing ( even max out) my pension contribution.
> I must admit, I need to do a lot of research in relation to increasing my pension contribution, not sure how high I could go ( guess 12%), whether I can reduce it down the road if my circumstances change, and if I have a say in how my pension is invested, any other advise please let me know, thanks in advance.



You can increase/decrease your pension contributions how you wish. It will always make sense to pay the minimum amount necessary to get your employers to contribute too. 

Here is a table of how much you can contribute.

Age% of Salary (Max €115,000)30-3920%40-4925%50-5430%55-5935%60 and over40%


You can also have a say in how your pension is invested. Most people's appetite towards risk decreases as you get older as the fund will have less time to recover from any significant drops.


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## EmmDee (14 Nov 2019)

If you really wanted to have mortgage interest to claim against tax on your rental - rather than buy another investment property, why not mortgage your current rental property and use the proceeds to reduce your PPR mortgage. Effectively switching some of your PPR mortgage to the property against which you can claim tax relief.

That also then allows you to still increase pension contributions (as mentioned above) out of current income - or to further reduce mortgage on PPR.


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## Sarenco (14 Nov 2019)

EmmDee said:


> If you really wanted to have mortgage interest to claim against tax on your rental - rather than buy another investment property, why not mortgage your current rental property and use the proceeds to reduce your PPR mortgage.


That wouldn't work.

To be deductible, the interest must be on a mortgage that is used to purchase, improve or repair a rental property.  It doesn't matter what property the loan is secured against.


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## EmmDee (14 Nov 2019)

Sarenco said:


> That wouldn't work.
> 
> To be deductible, the interest must be on a mortgage that is used to purchase, improve or repair a rental property.  It doesn't matter what property the loan is secured against.



Ah - thanks. To avoid exactly what I was suggesting I assume!!!


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