National Solidarity Bond & hedging risk
Apologies for previous abortive effort !.
I well realise that I more fortunate than most but would appreciate if anyone had advice/opinion on my current predicament & proposed strategy to best resolve it.
Am owner of foreign investment property bought about 3 years ago. Bought rather naively for pure investment purposes but realise now could likely also serve as a suitable family holiday home in the longer term. Property has run into some trouble but still capable of achieving gross rental return of around 2.5% in these difficult times.
Mortgage is 10 year interest only (380k) at a fixed rate of 5.5% until Autumn 2019. Mortgage interest & insurance payments are 22.25k annually.
I am in a position to pay off the mortgage but it will trigger immediate interest penalties of at least 10k. I am also reluctant to commit all this money immediately as it will reduce any possibility of easily extracting some money were the property to completely flop. I would have every intention of paying back the loan in total.
I am considering the following strategy:
1. Investing an equivalent (380k) amount in the 10 year NSB
2. Paying the interest payments monthly until 2019 form other resources which I can afford
3. In 2019, paying off the mortgage partly or in total (again) from savings.
4. Await the return of 380k (+ interest) in 2022 thereby getting my fixed interest payments back (I estimate these at about 150k in 2012 money terms)
5. Have a much clearer idea in 2018/2019 where I want to go with the property either keeping it or possibly selling at a loss if I judge that as the right thing personally.
To my mind there is no inflation risk with such a long term fixed investment in this scenario as the money received in 2022 will be paying back a fixed definite 2012 amount. I have estimated that interest payments between now and late 2019 will be more than equally compensated for by the fixed return of the NSB as long as the expected rental payments are received (worse case scenario would see a deficit of perhaps 40k if no rent received between now & 2019 which I consider unlikely to happen).
I guess I have 3 questions:
1. Can anyone see any obvious flaw in my strategy which has evolved after a lot of soul searching and analysis ?.
2. Obviously it is predicated on Ireland not exiting the Euro & the NSB paying out in 2022 but do people really have a genuine concern when repayment is a " direct unconditional obligation of the Irish Government" and where exiting the Euro would have to lead to multiple commercial and private defaults around the continent with investors such as myself squarely pinning any blame on the inability of a soverign to pay its debts and thereby being directly leagally responsible for my subsequent default.
3. Are there any other 8-10 year financial products out there giving a guaranteed net return of 3.93% that I should be looking at ?