Pay out Mortgage in NE or use fund to buy new PPR

[Chantilly]

Dear All,

One of my friend is facing a dilemma that I shall face soon too so thought I would seek for your guidance please; She will be at the end of the Fixed rate period at the end of this year and would like to buy a new PPR as her family is growing (2 kids). Currently has a 1 bed apartment - value 170K (bought 270K in 2008!); 5.35% from Haven; She has €100K savings and is wondering if she should use them at the end of the fixed rate period against current PPR or use it as a deposit again a larger place (circa 300-330K value) the current apt would become a rental (monthly €1000) and she could deduct 75% of the interest from the expected tax bill. She is in the higher rate tax band (€120 annual salary). Also what rate can she expect following the end of current fixed rate? Shall she approach the bank already to find out?

PS - she has no other credit and manage to save 800 min to 1000€ monthly after all charges are paid.

Many thanks in advance for any inputs.

 

[Brendan Burgess]

She should not pay off the mortgage on her PPR. She should conserve her cash.

Unless she is entitled to a tracker at the end of her fixed rate period, she should probably sell the apartment.

Haven will allow her to transfer the Negative Equity to a new property.

This is really important. If she is in negative equity, the new Central Bank lending restrictions will not apply to her.

If she pays off her negative equity, then she will be treated as a second time buyer and will need a deposit of 80% and max of 3.5 times her salary.

If she decides to keep her apartment as an investment, she will pay the Haven SVR for home loans which is about 3.75%. As she can deduct 75% of this against the rent, the effective interest rate is reduced to 2.35% [(3.75 -(75% @50% tax rate) ].

Also by keeping her cash for her new PPR, she can minimise the Loan to Value and might qualify for a lower rate from another lender.

Brendan

 

[Chantilly]

Thank you very much Brendan for the inputs; she is worried though whether a bank will give her another mortgage with current one higher than the value of the property and also wanted to reduce the monthly payment so that with additional mortgage repayment, the monthly outgoings is bearable when/if the property is out of tenancy - yes ideally she wants to keep it as an investment.