# Should we pay off cheap tracker on a rental property?



## Harry31 (2 Jun 2011)

We have a rental property, interest only mort. 130,000 with Bank of Scotland Ire, which has been rented for the past 5 years,  but will be for rent again Aug/Sept this year.  My question is:  we have the cash to pay it off & wonder - reading the headlines about savings perhaps being "attacked" by the government - if it would be a good idea to pay off the mortgage at this stage?  I do think that we'll be able to rent it again come Aug/Sept which would more than likely cover the mort/ins etc. - only just mind you.  The houses are selling for around 130/140,000 at the moment.

Also, would it be worth contacting the bank to see if they would give us a % reduction on the monies owed if we paid it off in total?

I was hoping that it would produce a bit of a nest-egg for me in the future as I was a homemaker for years & missed out on pension/savings for my "golden years".  I don't know about selling either - as long as we can rent it should we just tough it out & hope that things improve over the next 10 years or so - it's so confusing!!

What would be people's views & opinions?  They would be much appreciated.


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## cremeegg (2 Jun 2011)

Need a bit more info to offer an opinion. What interest rate are you paying, is it a tracker. How long have you the interest only, is it the full term.


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## Harry31 (3 Jun 2011)

We have the interest only for the full term which was 20 years, it isn't a tracker & the interest rate is 2.75%


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## Harry31 (4 Jun 2011)

Apologies - it is a tracker!


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## oldnick (4 Jun 2011)

I also have a tracker i-only loan on an investment proeprty. 
No way would I pay this off unless my bank offered a big discount .i asked my AIB manager if this would be possible ,but he said no - so the bank continues to lose money on giving me a loan at a lower rate than it gives me on my saving with the same bank !

 You're paying ca. 3.600 p.a. interest  but as 75% of this is tax-deductible then,if you are in the top 41 %tax bracket, the actual cost of the interest is ca. 2.500 euros.
If you're on a low income and pay tax at 20% then the actual cost is ca. 3.000.

Either way, not large amounts of interest to pay when you consider the advantages of having cash liquidity - an emergency, a business opportunity etc. Plus the interest you can earn in a savings account:- even with tax payable on interest earned you'll make nett  1.000 -1.500 each year.

To sum up - the real real cost  of your  interest payments is very very little. Hold on to your cash !!!

Also - some posters may advise that you hedge your bets and invest the money in a German or UK bank -in case of economic collapse in Ireland.

As regards selling your property ....
As long as the rent covers the costs and you have no real trouble renting it then you may as well hold on to your property.


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## cremeegg (4 Jun 2011)

oldnick said:


> to sum up - the real real cost  of your  interest payments is very very little. Hold on to your cash !!!




+1


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## Harry31 (6 Jun 2011)

Thanks all - we've actually written to BOS to see if they would give a discount - keep you posted!


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## Harry31 (23 Jun 2011)

Got a phone call last night at 7.00 pm from BOS to say that they wouldn't be prepared to offer any kind of discount on paying off some or part of the principal.  They did want to know how much we were thinking of paying, but we didn't specify.  They did say that "it would of course be in our own interests to pay off as much as we could, in order to save on interest"! So much for that then!


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## Bronte (23 Jun 2011)

I agree with Oldnick.  

Do you have a home loan, it would be better to pay that off.


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## Harry31 (23 Jun 2011)

Thanks Oldnick & Bronte - we actually don't have any other loans, so we'll hold on to the cash.  It was worth a try!!


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## Harry31 (11 Aug 2011)

Better half still nervous about carrying this debt.  We're in the process of trying to rent out again, taking a bit longer than previously but I'm very hopeful that we'll manage to get it rented in the next couple of weeks.  He's nervous because of all the speculation that the Euro will be devalued - but doesn't that mean even if our savings are devalued the amount of loan we owe is devalued as well?  Sorry if this is a simplistic or stupid question, but all the comment about the financial issued leave me totally confused - it becomes like "white noise" after a while.  Should we just keep our cash & (hopefully when we get a tenant) the rent covers the mort. insurance etc.  ?


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## Bronte (11 Aug 2011)

Harry31 said:


> Better half still nervous about carrying this debt.


 
Try not to look at this as debt but as an investment. I've just noticed that it's interest only.  How long is that for? How about switching to capital and interst, that way each year the mortgage is coming down.  I've never been a fan of the buy to let interest only mortgages myself. Invest the rest of the money in a high paying deposit account.


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## Harry31 (15 Aug 2011)

Thanks for all the input


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## Harry31 (13 Jul 2013)

Same question - different times.  Other half still keen to pay off a lumpsum, the interest rate is now 2%. I still feel we'd be better putting the lumpsum in maybe a high interest account - 3 or 4 year deposit.  Anyone any thoughts?  Of course if we did pay off say £5 or £10,000 our repayments would go down, but I don't see how that would benefit us.
The houses are still selling just at - or below - our loan amount, but luckily still rented out & covering mort. payments & insurance.


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## oldnick (13 Jul 2013)

interesting to see a follow -up  two years later ...

- first of all there is no such thing as a "high interest deposit" -even for a long period. After taxes you'd be lucky to get 1.5% nett which is about the same as you are paying     ( 2% of which 75% is tax-deductible as an expence). 
 So, either way - continue to paying interest or paying-off loan there is no benefit  either way as  regards the yield.

- you are out or almost out of N.E. which is a great psychological incentive to pay off the loan.
 Whether it makes sense financially depends on other factors :-
- are your jobs secure ?  do you have any cash reserve for an emergency ?  is your property in an area that is steadying/improving in sales prices and rental incomes?

If yes, then again , there is more temptation to pay off the loan.

I'd say your wife is starting to have a point. And long experience has taught me that unless one has a really good reason to oppose one's wife's views then maybe you should consider them (i.e. give in) !


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## wbbs (13 Jul 2013)

Can you pay off the lot?  BoSI way more likely to offer a discount then, have seen them agree to a  discount to get rid of a BTL on tracker, can't remember how much it was but there was definitely some concession.


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## cremeegg (14 Jul 2013)

oldnick said:


> interesting to see a follow -up  two years later ...
> 
> 
> I'd say your wife is starting to have a point. And long experience has taught me that unless one has a really good reason to oppose one's wife's views then maybe you should consider them (i.e. give in) !



Oldnick, I think the OP is the wife, and "pay off a lump sum" is her husbands attitude. That probably explains why they haven't paid off the lump sum so far.

As for the best course of action, well its finely balanced, but I still think, keep your cash.

Can you look back over the last 2 years and do a calculation on how things went versus what would have happened if you had paid off the loan?


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## Harry31 (16 Jul 2013)

cremeegg - you're right - I'm "the wife" - well done!  We could pay off the whole lot, but put money into the 3 year anpost offer, so maybe we'll just wait until that is matured & then think about clearing it.  Yes, we are in fairly secure jobs, so we're not struggling.  We did contact BOSI a while back about paying in a fairly substantial lumpsum, didn't tell them what it was, but they had no interest in giving us any kind of deal.  The house is still rented & the area, while not at the top end of the market, is quite popular so even if the present tenants decide to leave (which I hope they don't - we have reduced the rent a bit as their circumstances changed, but they're good tenants keep the place nice & we don't bother them - they don't bother us), I don't think we'd have much trouble letting it again. We do have some cash in reserve for other commitments. Thank you for all the replies AMM is a great forum for down to earth no nonsense comments & advice.


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## Harry31 (13 Nov 2013)

Well the decision has been & we'll be paying €10,000 off the principle next week. Not sure if it 's the right thing to do but overruled!
Situation still the same tg - tenants still in there.
I'm only concerned that BOIS will try & change the loan rate - it's not exactly a tracker but it's not a variable rate either - they had another name for it but can't think of it off hand.


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## cremeegg (13 Nov 2013)

Congrats on making the decision, thats often the difficult bit, and thanks for coming back with the update.

I was rereading your original post and picked up on the point about the homemaker and no pension.

If you declare the rental income (i.e. in your name) you must pay class S prsi on that and that towards the contributory OAP


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## Bronte (14 Nov 2013)

Harry31 said:


> I was hoping that it would produce a bit of a nest-egg for me in the future as I was a homemaker for years & missed out on pension/savings for my "golden years". .


 
I missed this bit of the original post, before you pay off the mortgage, can you see from social welfare in Sligo/Donegal if you can contribute now to your missing PRSI payments.  You should check up what entitlements you have and whether a lump sum would be allowed to increase these entitlements.  And I believe if you had children, some of your PRSI contributions are nowadaws counted as being earned.


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## Bronte (14 Nov 2013)

cremeegg said:


> If you declare the rental income (i.e. in your name) you must pay class S prsi on that and that towards the contributory OAP


 
I believe there is an issue with one person declaring the rental income as 100% theirs.  

I did not realise that rental income that one pays PRSI on, may entitle you to a social welfare payment in the future, are you sure of that?


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## cremeegg (18 Nov 2013)

Bronte said:


> I believe there is an issue with one person declaring the rental income as 100% theirs.


 
I was not aware of this, do you have any further info. 





Bronte said:


> I did not realise that rental income that one pays PRSI on, may entitle you to a social welfare payment in the future, are you sure of that?



I think that I am sure if that makes sense. I have done a fair amount of research into this and my understanding is that class S PRSI is payable on rental income, and hat this counts towards the contributory pension. However if anyone knows something different I would be very interested as this is a significant part of our financial planning.


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## Bronte (19 Nov 2013)

I know we debated before on the options of one person declaring the rent.  But it doesn't make sense, as the property is jointly owned.  And generally anything that's designed to avoid/evade has to be tackled very seriously.  

No idea about the PRSI, just would like proof that paying that Class S would give an entitlement to pension.  Maybe Mr.Bronte can retire earlier, or we don't have to worry about redundancy if that were the case as he would then be able at age 65/68 whatever get the full pension.  Sounds too good to be true.


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## Harry31 (19 Nov 2013)

The rental income/tax etc. is declared in both our names & we go to an accountant once a year to get the paperwork sorted - other half does it online.  I was at home for about 12 years in the 80's/early 90's & have been an employed PAYE person since.  I enquired years ago about signing for credits (was doing a course with other stay at home mums) & we were refused the right to "backdate" credits - even though none of us had been informed that we had the right to sign for credits when our "stamps" money ended.  As I have been working all these years & have there is a company pension in place, that I would be short contributions for the state pension.  When we go to Dublin this week we're only going to pay off £10,000, just to see if they offer us any incentive to pay off more.  I was concerned that they might take us of the tracker type contract we have, as we are the ones changing the situation, but they have assured us that will not be the case. Interesting points raised by everyone - thanks.


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## Bronte (19 Nov 2013)

Harry31 said:


> .- even though none of us had been informed that we had the right to sign for credits when our "stamps" money ended. .


 
Yes a lot of people don't realise that.  Even if now working one should always sign on for credits.  Harry I would enquire now about your current entitlements and what can be done to get back missed years.  No harm sending a letter to the pensions office, they are very helpful on the phone too.  But only get concrete advice in writing.


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## cremeegg (19 Nov 2013)

yy


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