Clear the mortgage or keep paying it?

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widescreen

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We have a rental property in Limerick ,good urban area. We have a twenty five year mortgage but there is another 16 years to go. At the current payment of just under €1,000pm including life assurance and if rates stayed similar for rest of the loan we would end up paying another €192,00 by end of term! House is now only valued at around 70% of what we paid for it. To clear the mortgage now would cost around €113,000 and clear out most of our savings.

House itself had a long term tenant and really could do with a bit of upgrading to get someone in at decent rent.

1. Would the advice be to keep paying the mortgage or clear it?

2. Would the Bank consider taking less than the outstanding balance to clear the mortgage but still leave us as the owners of the house?


Reason for question 2, is that this mortgage goes well beyond my retirement age when I won't be earning any money!
 
Mortgage protection life insurance is not mandatory on rental properties unlike (in most cases) PPRs. Did the lender insist on you taking this out or was it a PPR converted to a rental property and you just retained it?

In general I would be cautious about clearing a rental property mortgage in these circumstances. Certainly I would at least crunch the numbers to see what was most advantageous from a rental property business point of view. Remember that you can set 75% of the mortgage interest against rental income when doing your tax return (subject to PRTB registration etc. which is mandatory anyway).

I don't see why the lender would settle for less than the outstanding amount in this case.
 
widescreen said:
2. Would the Bank consider taking less than the outstanding balance to clear the mortgage but still leave us as the owners of the house?


!
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Why would they? It is a performing loan.

If you are working now presumably you are paying PRSI at the higher rate, on retirement you should aim to have the rental property paid off so that you can use the profit you make on renting to supplement your retirement income, when presumably your salary drops so you benefit from tax credits. At the moment it is better to have the mortgage tax relief on the rental income.

If the property needs upgrading do that now with your savings, you have to do it anyway, check out the tax advantages (not so many anymore). You may want to think about overpaying the mortgage so you have it at zero on retirement.

Looks to me like you need tax planning advice. Pay for good advice and plan your retirement property.
 
Bronte said:
Do not most lenders insist on this, in any case it is advisable to have life insurance surely?
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It's only mandatory (in most cases) for PPRs and not for rental properties. I don't know if lenders normally insist on it even for rental properties. Whether or not it's advisable depends on the individual's circumstances. There's an argument to be made that if a rental property is viable then it should be paying its own way and not need the mortgage cleared when the mortgage holder dies. Unlike a PPR where one wants to secure the family home for next of kin. And general life assurance should probably generally be dealt with separate from any property related mortgage protection life insurance that a lender insists on. The general life assurance should provide adequately for the next of kin. Either way this may be a minor cost in the greater scheme of things here.
 
Problem at moment is , we have no tenant, so paying a grand a month for nothing. max rent even if house was upgraded would be 700pm, may only get 550 as house is now. house is on market but will be slow to sell.

cant really see solution from my end. we will be in our seventies(hopefully!)when this mortgage ends(obviously will try to make higher payments) so our life is being wasted dealing with this now.

probably be better off if we couldnt service the mortgage! you get more help for failing in this country!
 
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