Pay off mortgage or not

G

Gunn

Registered User
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Hi All, here is a scenario that I need to make a decision on. An investment flat abroad is costing €600/month on repayment mortgage of €85,000. Net rent income is €300/month. So making a loss. I can pay off this mortgage which would turn the situation around. I would then be pocketing all the rent myself. No brainer? Is it though?

By paying off the mortgage I lose access to 85k and the €300/month interest it's earning in a savings account which offsets the loss anyway.

By keeping the mortage experts will say that servicing a mortgage is better as over the life of the mortgage inflation will reduce the real debt. In the meantime capital is being gradually repaid. There is also a tax advantage in that all the rent goes to servicing interest.

What is the best course of action here.

Thanks in advance.
Gunn
 
Hi,
Why not pay off €42,500 off the mortgage this way the rent of €300/month would cover the remaining balance on mortgage.
 
If you are able to claim the mortgage interest as an allowable expense when calculating net profit then there's no way I'd be rushing to pay it off. Much better to have access to the cash IMO, just in case.
 
Yes interest is deductable as an expense and if I wanted to benefit from this I should do nothing and continue to top up the mortgage by €300 per month. €3,600 per year, €36,000 over 10 years, and more over the remaining 20 years of mortgage....OUCH :(

Or pay back half of the debt and let the place wash it's own face. Here there is net profit (all going into capital repayment anyway) but taxed at a low rate. And I don't feel the pinch.
 
You do feel the pinch though, you have to sink 40 odd grand into it to get it to wash its own face which is a big pinch! With interest rates historically low, I don't understand your rush to pay down the debt, especially when you get relief on the (relatively low) interest anyway. Cash is king and allows you more freedom should something come up-you don't know what's around the corner. Lots of people would love to be able to borrow at these historicaly low interest rates but can't and you're itching to get out of it. Think carefully before committing the cash into the property. It's covering the difference in interest anyway. Perhaps you could look at getting a better return for your 85k somewhere? If interest rates change or tax codes change to remove the advantage, you can still pay down the debt then.
 
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