I think I can save €3000 pa on mortgage. Am I right?

I have 2 mortgages

PPR €225k @4.95%
Investment €290k @ 5.23%

I calculate that I can save a total of €3000 pa by

Reducing PPR to €112k and getting better rate of 4.5%
Increasing Investment to €401k at a reduced rate of 4.99%

€1000 of this saving is based on better rates and the rest based on a more tax efficent distribution of debt between investment and residence.

Any holes in this strategy??

Is the value of & income from the investment property sufficient to secure a 401K mortgage?

yep that would be about 66% LTV
I have some concerns that the yield from this property (it was our PPR)doesn't reflect its value...but feel that selling and purchasing a more suitable rental would expose me to too much transaction costs. Anyhow that's another thread

Mommah said:

more tax efficent distribution of debt between investment and residence.

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you realise that the mortgage interest from the debt transferred from your PPR to the investment property can't be offset against the rental income, right?

rmelly said:

you realise that the mortgage interest from the debt transferred from your PPR to the investment property can't be offset against the rental income, right?

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That's what I'm trying to find out!
I've read the guide to rental income guide on the www.revenue.ie website in detail and nowhere does it say that....the only place I've seen it said is on a 2006 thread on this site...so if what you say is true this strategy is seriously flawed. Although I can still benfit from the lower rates.

Mommah said:

yep that would be about 66% LTV

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LTV is one thing. You also need to consider your repayment capacity. Is your monthly income sufficient to pay the monthly instalment on €513k combine mortgages (circa €2750pm at 5% over 30 years) ?

Several off topic bickering posts removed. Stick to the point or face the consequences (e.g. removal of posts, issuance of infractions, banning).

bacchus said:

LTV is one thing. You also need to consider your repayment capacity. Is your monthly income sufficient to pay the monthly instalment on €513k combine mortgages (circa €2750pm at 5% over 30 years) ?

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Thing is I'm already paying it, have been for 3 +years
However the outlook for us ( financially) looks stormy so I'm trying to reduce our overall outgoings and this is one option area I'm investigating

I need to react to the lower interest rate options ASAP...but how I distribute the current debt between PPR (Home) and investment property is my key question.

Pity I missed the bickering

€1000 of this saving is based on better rates and the rest based on a more tax efficent distribution of debt between investment and residence.

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Only the Mortgage Interest which you are paying as part of the purchase or upgrade of your investment property can be used to to reduce your tax on Rental Income.

Peadar

You will only be able to use the portion used to purchase the rental property for tax reasons. The only other way to increase the loan for tax reason would be if that money was spend on the property.

You can still take advantage of the better rates and you will be able to transfer the full €225k for the PPR to the new tracker rate of 4.5% (will the LTV rate support this?)

sam h said:

You will only be able to use the portion used to purchase the rental property for tax reasons. The only other way to increase the loan for tax reason would be if that money was spend on the property.

(will the LTV rate support this?)

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Thanks Sam and Peadar

We didn't purchase this as an investment property as it was our PPR until 3 years ago. We did spend in the region of 50K renovating but didn't borrow any of that money/paid builders in cash etc (all our side tax compliant for the high moral grounders) ...so is there an argument for even increasing the mortgage by that amount??? (straw grasping I know)

Also why is this not refered to in the "Guide to Rental Income" document on revenue.ie...this makes me hope that it is possible..is your information based on hearsay or how do you know this???

Yes the LTV on our PPR is adequate to get the best rate.

|thanks again for your comments

In order to get a definitive response I rang the revenue directly.
Initial response was yes I could and when I explained that I had heard otherwise, but needed to know for sure....he went and asked his inspectors and after holding for some time....the answer is...........

NO...so ye were right

You could go interest only on your investment property, and use the savings to reduce your PPR mortgage. This is a more tax efficient structure & is discussed in other threads on the site.

I have a few points...

Number 1: Revenue gave you information over the phone, first yes, then no... in my experience you cannot trust this. Were they prepared to give you the information in writing? You need it in writing or the info is useless, you have no proof.

The Revenue probably won't give info in writing as if it's wrong you are covered anyway, they can't mislead you and then say you are at fault.

Ring them up again and watch yourself get a different answer.

I have personnel experience of this, got several different answers, wrote to Revenue explaining I needed a definitive answer and my tax returns would be late until I got it... it took months for the answer to arrive, I have to submit without the relevant answer, pretty brutal service I say...

Secondly if you can get a mortgage at 4.5% why not move all the money to this rate? You'd save over 3,000 / year if you could!

I think it would be totally unfair if you could get tax relief be moving money around in the way suggested, I am glad to hear you cannot in general but I do hope you can find another way of managing, .. I just wouldn't want to hear that the taxpayer is subsidising investment properties.

Interest only on the 290,000 at 4.99% would be about 1206 / month... is this the amount that can be offset against the rental income which may be less than 1206 or only slightly above?

Wishing you luck

webtax said:

You could go interest only on your investment property, and use the savings to reduce your PPR mortgage. This is a more tax efficient structure & is discussed in other threads on the site.

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Thanks webtax...an interesting option

Joe...thanks...but the fact is the net cost of the 4.99% is cheaper than the 4.5% cos the interest is tax deductible on the investment property but not on the PPR. We are tax payers ourselves...so the general taxpayer is in no way subsidising us...although if the worst comes to the worst...you may be paying out for my social

Just trying to optimise my current position and not trying to avoid paying my dues....just don't want to overpay.

ok, so it seems the 4.5% rate is only available for your PPR loan.. the bank refuses to give a loan secured on the investment property at 4.5%, minimum is 4.99%, is that right?

How does the bank justify that?

If the loans were merged (at a lower rate) can you seperate out the interest relating to the investment property yourself, and claim tax relief (or tax offsetting vs rental income) on this seperated amount? Would Revenue allow this if the banks did?


On the original question, if you put 401,000 at 4.99% the interest is 1667 per month, is this in fact the actual rental income and the reason why you proposed the original amounts in those specific proportions?
(Very personnal question I know, I just like working with figures and finding correlations)

Re the banks...didn't ask them to justify just accepted that investment related debt is probably riskier to them than PPR related debt...hence the higher rate???

Yep I was trying to get the optimum amount to shelter the rent.