Pay lump sum or use it as a deposit to buy another property

[help999]

Hi im looking for some guidance.
Would it be better to Pay lump sum off mortgage or use it as a deposit to buy another property.
20k sum.
Buy another property as a long term investment. There houses being sold for 250k that are making 2k per month in rent. All going well you would have deposit back in 3 years and equity in the house built up.
My current mortgage is 275k, house value 380k
Annual pretax income 64k.
Just undet 29 years left.
2.15%aib green rate.

Thanks

 

[cloughy]

How would you fund the purchase, looking for mortgage of 275k + 250k (you will have purchased costs, kitting out) do over 500k on a salary of 64k, don't think you will get finance, as BTL you would need 20% plus as a deposit

 

[cremeegg]

How would you fund the purchase, looking for mortgage of 275k + 250k (you will have purchased costs, kitting out) do over 500k on a salary of 64k, don't think you will get finance, as BTL you would need 20% plus as a deposit

Yes, it takes money to make money, unfortunately.

 

[Brendan Burgess]

Annual pretax income 64k.

My current mortgage is 275k

So you have a mortgage on your home at 4.3 times your income and you want to borrow more money?

You are very vulnerable already with such a high Loan to Income. Who knows where interest rates will be when your fixed rate ends?

You also have a high Loan to Value 72%. Who knows what will happen to house prices over the coming years.

So pay down your mortgage to a comfortable level. I would say twice your income would be the level of comfort required before you can think about investing in any way other than to pay down your mortgage.

Brendan

 

[ClubMan]

Just to add, if you have higher cost unsecured loans outstanding then you should probably prioritise those first.

 

[PebbleBeach2020]

There's no chance whatsoever of you getting a BTL loan.

 

[help999]

So you have a mortgage on your home at 4.3 times your income and you want to borrow more money?

You are very vulnerable already with such a high Loan to Income. Who knows where interest rates will be when your fixed rate ends?

You also have a high Loan to Value 72%. Who knows what will happen to house prices over the coming years.

So pay down your mortgage to a comfortable level. I would say twice your income would be the level of comfort required before you can think about investing in any way other than to pay down your mortgage.

Brendan

Sorry ment to add its a joint mortgage partner has income of 34k gross.
Didnt include that using worst case scenario incase partner didnt return to work after extended maternity leave.

 

[Brendan Burgess]

Didnt include that using worst case scenario incase partner didnt return to work after extended maternity leave.

OK, I was wondering how you got such a big mortgage.

Given that you have a partner and a child, you do want financial flexibility. It will be tough going on one salary. It would be much tougher on one salary plus a second mortgage and a tenant unable to pay the rent "through no fault of their own".

Brendan

 

[_OkGo_]

20k sum.
Buy another property as a long term investment. There houses being sold for 250k that are making 2k per month in rent.

You really shouldn't be considering a BTL property when you haven't even looked up the most basic requirements.

You have €20k available to you of which €10k of that should be reserved as an emergency fund. The other €10k would disappear very quickly with the costs involved in purchasing a property. So basically you have zero available for deposit.

For a BTL, you will need at least a 30% deposit so at least €75k more than you currently have.

All going well you would have deposit back in 3 years and equity in the house built up.

You won't have your deposit back in 3 years. The property may be profitable but it will be cashflow negative to you. Any gains are tied up in the property and it will be a financial burden on you to keep the mortgage and tax paid.

 

[help999]

Thank you to all.