# Out of work - What do I do with my mortgages?



## Tank (18 Sep 2008)

I currently have two properties.   One, my own house worth 520K with a repayment mortgage with 245K left on it.   The second, is my previous house, which wont sell at the moment and is worth just under 400K with 255K left on it (Interest only thank God). We have had to rent this out to cover its cost, which the rental currently does, and some.       I just lost my job and both myself and my partner are on job seekers allowance.   I have 130K in the bank and am at a critical position to make a decision.

What should I do with the 130K?

Pay part of the current mortgage?
Put on deposit?
Buy another property and rent!

My concern is that for health reasons, I wont be working for at least 3 months now and want to make a decision that secures my family in the long term.

Thanks in advance


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## ClubMan (18 Sep 2008)

Tank said:


> The second, is my previous house, which wont sell at the moment


Maybe your asking price is too high?


> We have had to rent this out to cover its cost, which the rental currently does, and some.


After all tax and (allowable) expenses are accounted for?


> I just lost my job and both myself and my partner are on job seekers allowance.   I have 130K in the bank and am at a critical position to make a decision.
> 
> What should I do with the 130K?
> 
> ...


Well almost certainly not the last option I would have said!


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## Tank (18 Sep 2008)

Clubman, thanks.
The house was worth 500K, and they are now going for under 400K in the area, which kills me! Even the ones at 380K are not selling at the moment.   To be honest, I would not sell at those prices at the moment, as I believe that they will settle at some stage!


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## Howitzer (18 Sep 2008)

Tank said:


> Buy another property and rent!


You've got to be kidding me.

Edit: This has to be a troll.


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## ClubMan (18 Sep 2008)

Tank said:


> Clubman, thanks.
> The house was worth 500K


On paper? Not much use if you want to liquidate it.


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## Tank (18 Sep 2008)

Clubman,
Rental is 1625, interest only is 1075, and we spent 30K renovating, so I suspect that the existing house covers itself...   I will hold onto it, if it is a good idea, which the figures suggest.


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## Bronte (18 Sep 2008)

If the rental property is more than covering it's costs I'd keep it, and I'd reduce the mortgage on your current home, and you immediately have lower outgoings,  that's if the deposit interest you would receive is more than the interest you pay.  You have to do the sums.  There is no point reducing the mortgage on the rental property as there is more tax relief on this.


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## Bronte (18 Sep 2008)

You've put in some more figures since I wrote - what are you planning on doing to repay the capital on the rental property?  Are you putting the extra 500 to pay for day to day expenses or are you saving it?


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## ClubMan (18 Sep 2008)

Tank said:


> so I suspect that the existing house covers itself


You mean you don't actually know!?!


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## Red (18 Sep 2008)

Agree with Bronte. 

Use 100k of deposit account to reduce your own mortage repayments. Re-negotiate with the bank to pay the final 155k over a longer term. Think about fixing for a year even. When circumstances improve, you can always pay more of it off etc.

Keep 30k for emergency funds etc


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## Tank (18 Sep 2008)

Bronte,   Thanks.   Before I pay off the mortgage, I want to exhaust all avenues, as I am sure that once I give the bank the money, with my current situation, I will be unable to get a top up, or funds for setting up business next year.  IE, they wont give it back!

Clubman, we have a seperate account for the house incoming and outgoing, and track the costs.   There are a few euros extra every month in it and we track costs, so I am quiet sure that it is generating a small income.   With no job, I have a lot more time on my hands now, so I could probably do a full analysis on it!!!!

Red,   Good idea, which we factored in.  We have another 25K aside to live for the next 6 months, as we will certainly need it.


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## Howitzer (18 Sep 2008)

You're taking in more in rent than your interest on the rental property. What provisions have you made for your tax liabilities?


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## Tank (18 Sep 2008)

We renovated the house, and have costs relating to renting it each year.   Insurance, furniture etc   I understand that you can write some of this off the costs (Would appreciate advise on this if anybody knows the ins and outs).   The contract is under my partners name, who has not worked this year.   We are expecting some tax liability on it, but not much.


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## Howitzer (18 Sep 2008)

How long have you been renting it? Have you registered your tenancies with the PRTB?


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## Tank (18 Sep 2008)

Thats done... And another story with that one.


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## DerKaiser (18 Sep 2008)

If the rental property is not a strain let it be. 
Put your savings in a high interest account (or accounts) and drawdown a monthly amount to cover the mortgage repayments on your primary residence whilst you're out of work. 
You might be better off taking what you can get for the rental property but the easiest thing to do for the next coupl of years is keep things as they are and live off your savings whilst out of work.


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## Tank (18 Sep 2008)

DerKaiser, Would paying off the mortgage on my primary residence not save me more than a high interest account?   This is where I am stuck.   I am also fearful that putting money into a savings account is no longer 'safe'...


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## danFTB (18 Sep 2008)

Sell investment property for 370-380k
use 125k profit along with your savings to pay off your PPR mortgage completely
you are now mortgage-free! with an asset worth 520k - this is killing most of the risk and putting you in a very favourable position should you ever want another loan.


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## bamboozle (18 Sep 2008)

If u look at things from 2 perspectives the solution becomes a lot clearer;
1) Your rent on investment property exceeds the Interest portion of the mortgage- thus its paying for itself
2) The tax u pay on rental income is on the rental income – interest portion of mortgage=1625-1075=550-liable for tax (less capital allowances on furniture & repairs etc for the rental property)

So, if it was me I would definitely reduce the mortgage on your PPR by at least 100k, I would also even consider releasing another 25-50k from your investment property and use that to further reduce your PPR’s mortgage just to ensure the mortgage on the PPR is as manageable as possible.


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## Tank (18 Sep 2008)

Bamboozle, that is an excellent idea, and one I didn't think about. Releasing from the investment property would certainly, in the short term, make life easier for us. I think that I need to run through that idea tonight.  Thanks very much.


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## NorfBank (18 Sep 2008)

Tank said:


> Releasing from the investment property would certainly, in the short term, make life easier for us.



It might make life easier but to release equity you will have to show repayment capacity to the bank. With both of you not working and with banks reining back lending in relation to investment properties, this could be difficult. Sorry to be the bearer of bad news.


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## Tank (18 Sep 2008)

I have the two mortgages with the same bank.  Surely they will allow me to move funds from one to another to make life easier for us?!  Still the same money outstanding!   Or am I too naive?   Do any of the banks offer current account mortgages any more?


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## WaterSprite (18 Sep 2008)

I wouldn't pay much against the PPR with your savings considering you are currently out of work and, without knowing what industry you are in, you may find it hard to get back into the workforce immediately after you are well enough to return to work.  So I would keep at least a year's expenditure in savings and put some of the rest against your PPR if you want to.  Until you have employment income coming in again, I would keep liquid.

Sprite


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## DerKaiser (18 Sep 2008)

A year or two ago I would have said you'd be mad to have both savings and a mortgage. Now you'll probably be able to earn as much interest on your savings as you would save in interest if you paid off your mortgage. There is a definite advantage in having access to savings, if you pay down your mortgage there is no guarantee the bank will advance you money based on the equity in your property, and this would not be a good situation for someone out of work for any length of time with no savings!

If you can continue to rent out your rental property and it covers the mortgage you have some breathing space on that.

Your worry then is how to pay for the mortgage on your primary residence whilst out of work. The €130k will sustain you for a couple of years anyway so you're not backed into a corner for the time being.

Good businesses are going bust around the world not because they are unprofitable but because they have no short term access to cash. It will be the same for individuals. If you can weather the storm, by maintaining access to cash, you should be fine. Running down your savings now would be a bad move as your options become very limited in the event of a crisis.

I have no idea when things will settle but the time is approaching where people will be forced to sell their houses for next to nothing if they lose their jobs and have no savings. The people to benefit will be those with enough cash to weather the storm

One final point to address is where to keep your savings. I believe that the state scheme guarantees 90% of your savings up to €20,000. I think Northern Rock have an even higher level of guarantee as they are backed by the british government. 

I don't get bamboozle's idea of releasing money from the rental mortgage. Do you mean increasing the mortgage? Even if this was possible, banks are not keen to lend against property (especially where someone is out of work), how does it help?


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## webtax (18 Sep 2008)

bamboozle said:


> I would also even consider releasing another 25-50k from your investment property and use that to further reduce your PPR’s mortgage just to ensure the mortgage on the PPR is as manageable as possible.



Interest on any funds released from your investment property cannot be deducted as an expense against your rental income, so this is not a tax efficient option.


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## Tank (18 Sep 2008)

DerKaiser, thanks for your comments. You seem to know me!   My fear is that I have no guarantee that my bank wont go bust and I lose a lot of money.  Never say never!   I nearly feel more comfortable not having it for that reason.   I can survive on very little money also.   I have the same question that you note, which is where can you save sums over 20K with security and a good rate? 

Re your comments on Bamboozle. I feel that they mean that I increase the investment mortgage and use that money to pay off more of my main house. This makes sense, although if webtax's comments are right, it may not be as beneficial as it seems.

A lot to keep me awake tonight!


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## Steve D (19 Sep 2008)

When you see major banks failing you have to realise that the whole world could be on the verge of a very serious recession and in a recession it is best to keep debts to a minimum. The whole crisis at the moment has been caused by credit being too freely available and this has let to a boom in asset prices which has now burst.

Assets can rise and fall in value but debts stay the same unless you pay them off. In recessions credit and jobs are very scarce and it can take several years for economies to start to improve. 

The current banking crisis will mean that banks will tighten up on their lending criteria, thereby making credit more difficult to obtain and this will mean that asset prices will continue to fall because even if punters want to get mortgages, the banks will not give them out as easily as they did in the past. You will have to expect banks to start asking for 15 to 20% deposits + giving max loans of aboiut 3 x salaries in the near future, as they did in the more prudent old days. This means that property prices are likely to continue to fall and it is likely to be a very long time before they start to rise again.

If I was in your situation I would reduce the asking price and sell the rental property asap and use the proceds + your savings to pay the mortgage on your PPR off.

Even though the rent in your investment property is currently covering the mortgage, the value of the property is falling. So it is probably better to cash in now than to wait and see your investment property fall closer towards negative equity. When your current tenants leave it may also be difficult to find new tenants because there is a huge over supply of property to rent at the moment.


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## mainasia (19 Sep 2008)

Steve D, your comments seem pretty wise. 
The OP's situation is not very stable at the moment and still sitting on a lot of debt. The property game is going sour from two angles (global credit crunch and income recession). This will put a double whammy on pricing for property sales and rent will drop if you check Daftwatch you will see that (Ireland had the BIGGEST property boom of all countries worldwide meanwhile most of our growth in pop'n was based on the same people building the houses). If the situation get's worse(you might have 1 year or less to even break even on your 'investment') you could be stuck with a big pile of debt and no exit strategy for 10+ years. Once there are a few bits of major bad news jobswise (Dell etc.) it will send a further jolt through the market.
Starting a business will be very difficult in a recession or bad economy (I have experience of this).
You'd be better trying to clear this risk while you can.......


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## Bronte (19 Sep 2008)

Webtax is correct there is no benefit to increasing your mortgage on the rental property as the interest will not be tax deductable.  Yes if it's to do up the rental property but not otherwise.  You should go onto revenue.ie and they have a list of things (not all ) that is deductable when calculating your rental income liability.  I would do out a rough calculation now so that you know or have a fair idea of your tax liability as it seems to me you are making quite a bit on it.  If you cannot calculate it it would be worth your while paying an accountant to do it for you (fees also deductable for rental income).    If you agree with Steve D then selling your rental property is also an option.  If your property is in a really good rental area I wouldn't sell.  Don't forget the 20K guarantee is double for 2 people and also that some banks have higher guarantees.  You can check AAM on this and also lots of stories about rental properties.   As an aside could you tell me about your dealings with the PRTB as believe it or not I always find this fascinating.  You can PM me if you prefer not to confuse the point of this thread.


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## DerKaiser (19 Sep 2008)

some good points here this morning. Steve D points out the very real risk that in the future you could get stuck with a vacant rental property. If this turns into a prolonged recession (3 years +) then selling the rental property would be the way to go. As I've said earlier though I would keep any excess proceeds as savings rather than running down your mortgage, at least that way your PPR is secure for a number of years even if you fail to get back to work.

Most commentators would believe that things will stabilise after a couple of years. If that happens then your current savings should see you through without having to sell off either property.

If you want to be really cautious get rid of the rental property as it's one less thing to worry about. If you are pretty certain you can continue renting and can get back to work within a year or two it I'd hold on to it.

As per the security of savings, I've seen differing advice on taking out accounts with differing banks (foreign ones may have higher guarantees), accounts in your name, your partners name and in joint names. I'm not 100% sure on any of this and you should maybe read the savings and investments thread which deals with this aspect.


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## mainasia (19 Sep 2008)

You're just (like most Irish people and esp. most posters on AAM) attached to a certain asset class i.e. property. 
There will be no good returns from property in the next 10 years at least. It's been wound all the way up and it's almost certainly going to wind way down. 2-3 years is too conservative regarding property market, 10 years is more like it. Stabilise, what does that mean? Stabilise at what price, half? Stabilise for how long,2,5,10,15 years?  Saying something like 'it would stabilise in two years' is just gobbledy-gook. It's just a sound bite, a word thrown out to console people to try and prop up confidence by the govt. and builders trying to shift stock. 

So what's the point from an investment point of view?

DerKaiser, why should he hold onto it, really?


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## Bronte (19 Sep 2008)

While I do agree that Irish people like property in Tank's case he has circa 50 percent mortgages to property value,  920K value to 500K loans plus he has cash of 130 although no job.  If he had said he had no cash and loans of 100 % the advice I'd give would be more like Steve D.  The truth is nobody knows what will happen.  And yes 2 to 3 years is too short in relation to property.


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## mainasia (19 Sep 2008)

We don't know what can happen but we can make an educated guess. Educated guess says no real income increase (I predict an actual decrease, believe it or not it has happened in the US and many Asian countries over the last 10 years, Irish wages are high compared to other countries, justifying this by saying 'things cost more here' will not keep it increasing in the broader competitive context) compared to inflation for next 10 years, higher unemployment, lower immigration and unwinding of massive bubble created over 10 years. If he wants to get rid of the load he should do it now. It's not to say Ireland and the property market doesn't have a decent future over the next decades, it's just rather than the 'fundamentals are sound' it should be the 'fundamentals have changed'.


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## Howitzer (19 Sep 2008)

Bronte said:


> While I do agree that Irish people like property in Tank's case he has circa 50 percent mortgages to property value, 920K value to 500K loans plus he has cash of 130 although no job. If he had said he had no cash and loans of 100 % the advice I'd give would be more like Steve D. The truth is nobody knows what will happen. And yes 2 to 3 years is too short in relation to property.


Reread the initial half dozen posts, the value of the properties isn't 920K. One property had a "value" of 520 a couple of years ago but similar propertues fail to sell for 380K now. 

The OP has 2 properties - value unknown in the current market as there are no transactions - debt of 500K, savings of 130K and no job. The OP also sounds risk averse. Base your advice on that.


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## Bronte (19 Sep 2008)

Howitzer said:


> Reread the initial half dozen posts, the value of the properties isn't 920K. One property had a "value" of 520 a couple of years ago but similar propertues fail to sell for 380K now.
> 
> The OP has 2 properties - value unknown in the current market as there are no transactions - debt of 500K, savings of 130K and no job. The OP also sounds risk averse. Base your advice on that.


 I can only go on the figures the OP posted.  I assumed that the 380 referred to the 400K property.  And you know well enough that I cannot talk about house prices, even if I could it wouldn't make any difference as I previously said no advisor can say what way the wind will blow.  Each of us on here can only give the OP the different options.  I do of course have my own opinion on it.  For a risk adverse person then my advise would be to sell one of the properties and put any profits off the remaining property, keeping a servicable mortgage and enough cash for 2 years in the post office (due to the out of work scenario).  If you are really really risk adverse sell the whole lot and rent. And then this leads to where do you put the money? 3% isn't going to beat inflation.  What advice would you give H? And you are of course right that the value is unknown.  By the way I agree with Steve D, Derkaiser and main asia.  But that's the problem isn't it - nobody knows.


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## Howitzer (19 Sep 2008)

Northern Rock has a 5% demand account - 100% guaranteed and risk free.

In the current market I can't see any scenario where shuffling funds from one mortgage to the other will give a net gain. Again throwing savings at the PPR may not give much of a net gain either when high yielding savings accounts are available. 

At the end of day the longer the OP stays out of work the larger the drain on savings. From personal experience the longer you stay in a comfort zone of believing you're better off than you are the longer it takes for you to get back in the job market, maybe accepting pay rates much lower than you would have previously countenanced. The OPs current situation with regards to servicing the 2 mortgages is relatively comfortable but the idea that the properties have a certain value based on what somebody may have paid a couple of years ago isn't sensible . 

Going back to the OPs 3 proposals; 1. I'd leave the mortages as they are, 2. savings are for a rainy day - it's raining now - don't tie them up where you can't access them, 3. buying another property would be madness, irrespective of your opinion on the furture direction of prices, see point 2.


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## DerKaiser (19 Sep 2008)

mainasia said:


> DerKaiser, why should he hold onto it, really?


 
In a nutshell it's because Tank wants a long term investment and so long as rents don't deteriorate seriously they'll be OK.

That said, no one has a crystal ball.  Tank has to decide if they want the certainty of the return on a deposit account or continue with the risks associated with rental income


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## Tank (19 Sep 2008)

Howitzer, How safe would my money be in Northern Rock? Is anything 100% guaranteed?    I think that from reading the posts, we are all saying the same thing.   Each route is very uncertain, and most comments have merit.   I am more swayed to paying off the mortgage on my own home by 100K and holding approx 50K to the side for access as liquid cash.  At least if house prices fall, I will have it paid off, whereas my mortgage will never fall in price unless I pay it!!! Selling the house is an option but in the current market, I would nearly have to give it away.    I do plan to go back to work, and have plans to do whatever comes up.   Will rental income fall by more than 30%?


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## VOR (19 Sep 2008)

I agree with Howitzer. Cash is king. Giving the cash to the bank pays off some of the debt but means there is nothing left to pay the remaining mortgage next month. Did posters miss the point that the couple are both out of work???


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## Howitzer (19 Sep 2008)

Tank said:


> Howitzer, How safe would my money be in Northern Rock? Is anything 100% guaranteed?


Yes. 100%. Once they were taken over by the UK Govt they became the safest place to put your money on deposit.



Tank said:


> Will rental income fall by more than 30%?


who knows but it's not beyond the realms of possibility. This happened in the period 00-03. The latest CSO report shows rents falling by 2.9% in August (this is usually a month where rents go up due to excess demand from students). Annualised that would be a 34.8% fall.

[broken link removed]

Those are average figures - you have 1 property not 1000 - so the only figure that matters to you is your own tenants.


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## bamboozle (19 Sep 2008)

webtax said:


> Interest on any funds released from your investment property cannot be deducted as an expense against your rental income, so this is not a tax efficient option.


 

i actually hadnt suggested releasing funds on the investment property to benefit from a tax perspective i suggested it as the current rental imcome greatly exceeds the interest on the mortgage so the OP can afford to increase the mortgage on the IP and still have the rental income cover the mortgage, the flip side to this would be the mortgage on the PPR would be further reduced thus the mortgage payments/term on the PPR will be further reduced, given cash flow will be an issue for the OP i'd focus on reducing his expenses/outflows to more manageable levels.

i'm not saying this it the right or only way to do it but its the way i'd choose based on the OP's thoughts (if it were me i'd sell the IP immediately and reduce the PPR's mortgage as much as possible)


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## Eithneangela (19 Sep 2008)

_*The tax u pay on rental income is on the rental income – interest portion of mortgage=1625-1075=550-liable for tax*_ 

I did not know that you could claim mortgage interest on a rental property as well as on the principal primary residence.  Is this true?


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## Complainer (19 Sep 2008)

Eithneangela said:


> I did not know that you could claim mortgage interest on a rental property as well as on the principal primary residence.  Is this true?


Yes, this is yet another subsidy given by Govt to (indirectly) the building industry. And just to inflame you further, the relief on a rental property is unlimited, compared to the fairly low level of interest that can be claimed on your residence.


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## mainasia (21 Sep 2008)

Complainer, unbelievable isn't it.

To OP, Northern Rock accounts are govt. backed, the safest you place to put your money by far and probably the soundest yield wise.


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## Tank (21 Sep 2008)

Thanks all.  Gonna make a decision by the end of the day, and it looks like it will be a mixture of all of the above!   Retain the properties, pay off some of my home mortgage to make it more manageable and place some money in Northern Rock, or equal, enough for a year or two out of work (I reckon I will be back after Christmas though)...   Tank


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## DerKaiser (22 Sep 2008)

sounds sensible - best of luck with the job hunt


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## Deb___ (22 Sep 2008)

Hi Tank
Best of luck to you. It sucks being out of work. To me the answer seems obvious. Offload your second property - let's say you get 360k (as it's obviously overpriced at 400k) pay off that mortage and you're left with 105k - but I guess you'd have to pay capital gains tax so (guessing here) let's say you're left with 85k net. Pay 75k of that off your residential mortgage (effectively reducing that debt by more than 30%) - put the remaining 10k in the bank, gaining interest, and it's there for emergencies. Honestly, what's the point in renting out a property that just about covers the mortgage and you have the dreaded principal to pay back at the end? Who needs that added stress?

Good luck.


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## RAGE101 (15 Oct 2008)

Tank said:


> I currently have two properties.   One, my own house worth 520K with a repayment mortgage with 245K left on it.   The second, is my previous house, which wont sell at the moment and is worth just under 400K with 255K left on it (Interest only thank God). We have had to rent this out to cover its cost, which the rental currently does, and some.       I just lost my job and both myself and my partner are on job seekers allowance.   I have 130K in the bank and am at a critical position to make a decision.
> 
> What should I do with the 130K?
> 
> ...


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