Pay mortgage principal or save

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Thrifty1

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Hi, i am hoping to rent out an apartment i own soon. For the sake of this exercise say rental income covers the mortgage repayments.
At the moment i am paying almost €900 a month in repayments. If the rent covers this i am wondering would i be better off using the €900 to pay off the principal of the mortgage or save the money each month.

The mortgage is at a rate of 6.01% at the moment. (ECB + 1.85)
I am thinking about opening a regular savings acc with INBS, its at 7.35% until Mar 09 and at least ECB + 1% until Dec 2010.

Also have the option to fix mortgage for 5 years at 6.27%

Any advice greatly appreciated.
Thanks.
 
The interest charge on the mortgage is an expense you can use to reduce the income taxable portion of your rental income.

So it makes more sense to put it into a regular saver rather than pay down the principal.
 
See the Property Investment key post about why having an interest only mortgage on an investment property might make sense.
 
Caveat to my previous post.

It only makes more sense if:

* You can use it to repay a more expensive debt instead (e.g. A mortgage on a principal private residence, personal loan) or

* The regular saver rate AER is at least 1.25 times higher than the investment mortgage APR. Since it's an investment mortgage you will not get TRS on the interest.

While 7.35% looks better than 6.01% it isn't after you take account of DIRT and the lack of TRS. 80% of 7.35% is 5.84% which is clearly less than the mortgage rate.

So in your circumstances repaying more expensive debt is the only way to make it work.
 
The mortgage on the apartment is a regular residential mortgage, would we need to change it to an investment mortgage?
Also at the moment my husband is receiving trs on this mortgage will that continue?
 
Thrifty1 said:
The mortgage on the apartment is a regular residential mortgage, would we need to change it to an investment mortgage?
Click to expand...
Check the terms & conditions of the existing mortgage. As I mentioned above interest only might be appropriate in this case.
Also at the moment my husband is receiving trs on this mortgage will that continue?
Click to expand...
Not if it is no longer your PPR.

Obviously there are a raft of other potential issues when converting a former PPR to an investment property. But the good news is that they are summarised in the Property Investment FAQ, many existing posts on the same sort of topic and on www.revenue.ie etc.
 
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