Mortgage Overpayments?

[John_Jo]

Guys, I need some advise.

I currently hold two mortgages as follows:

Mortgage 1 - PTSB Tracker (ECB +1.3%, Currently 1.8%) Main Residence, €190k outstanding over 27.5 years.

Mortgage 2 - Ulster Bank, Formerly First Active, Variable Rate of 4%, Investment Property, currently rented. 90k outstanding over 16 years.

I am currently overpaying the Investment Property Mortgage by €300 per month in an attempt to reduce the 16 years down to 9-10 years. I am wondering if this is the correct strategy?

I have cash savings of about 6 months of wages which I wish to hold as a contingency.

Is it better to pay off the bigger debt on the main residence, albeit at a reasonable tracker rate, or continue on the current path? Any advise would be appreciated. Thanks. John.

 

[huskerdu]

The question should be

What is the best use for 300 a month which I have to save / invest ?

A few questions

What is the market value of both houses ?
What is your plan for your PPR ? Is it a house that will suit the needs of you and your family for the next decade or are you likely to outgrow this house and want to move?

does the rent for the investment property cover the mortgage and can you cover the rent for a while if you cant get a tenant.

 

[John_Jo]

Hi Huskerdu,

In answer to your questions;

I had the Investment Property valued at €215k about a year ago. As I owe just under 90k, it represents a strong position in my opinion. Because of the LTV, Ulster Bank cut my rate from 4.5% to 4%. I should say that this investment property is built on "family land" so I am not keen to sell it any time soon as I have a strong connection to it and the area in which it's built, and my parents still live near the property. The rent is paying two thirds of the mortgage and as stated above I am also topping up with overpayments of €300 per month on it.

My main residence is probably worth between 140-150k. It's a three bed(2 + box room) mid terrace. Location is good and meets my needs at the moment. We have one child at the moment (2 years old). If another arrived, depending on gender, we may have to trade up in next 6-7 years.

I feel I have a decent cash position with a deposit account holding a value of 6 months of combined wages (me and my wife). We are both in stable employment. We have an investment in shares also which represents about 20% of our investments. And then there is the investment property which is a good asset to have given what is owed versus its value.

We don't have car loans, credit union loans, or credit card debt. If we go on holidays, we save up. If we need to change the car, we save up. I drive a 2008 diesel, my wife a 99 petrol. We're not flash and live fairly frugally as regards going out etc. We do pay for private health insurance since our child arrived. I think I've got most bases covered as regards day to day stuff and just want to focus on reducing the debt which stands at a total of 280k approx.

Thanks again for your interest.

John

 

[huskerdu]

thanks, That should make things clearer for you.

You have equity in the investment property, but you do not want to sell it.
This means that the money you are paying to reduce the mortgage cannot be liquidated. You will not be able to use this equity for anything else in the future unless you sell it.

You have Neg Equity in your current home, which is not a problem at the moment, as you are happy to live there and can afford the mortgage.
Your forward financial planning should be focussed on what will happen when you want to move. The equity you have built up in the investment property may not be any use to you and you may find yourself unable to afford to move, without selling the investment property.

My advice is to save the 300 a month. You may not get 4% interest, so on paper this will cost you a bit more than your current strategy of paying off the investment mortgage, but it is a better medium term strategy as the money will be available to you and you can make choices about what to do with it.