Paying off mortgage on investment property..good move?

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Teeley

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We have an investment property. Approx. €160k left on mortgage. Interest rate 3.4%.
We have €70k in a current account. Also have other savings and maxed AVCs.
Does it make sense to pay lump off this mortgage and reduce annual tax bill? I think yes but unsure if I'm missing something.
All advice appreciated. Thanks.
 
Teeley said:
Does it make sense to pay lump off this mortgage and reduce annual tax bill?
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You will be reducing your interest cost but increasing your tax bill.

at the moment, you are paying €5,500 a year in interest but you set that against your rental income, so the net cost to you is "only" 2% after tax.

I assume you don't have a mortgage on your home? If you do and it's not a tracker, paying it off would be a priority.

It would certainly be better to pay off a mortgage which is costing you 2% than to have €70k earning you 0%.

So assuming you have no non-tracker mortgage, then, yes pay off the mortgage on the investment property.

In normal times, it might be worth the risk to borrow money at 2% net to invest in shares. These are not normal times, as the risk is definitely higher than normal. So I would not borrow at 2% to invest in shares.

Brendan
 
Thanks Brendan.
Sorry I didn't mean to say reduce our tax bill..paying off mortgage will increase our taxable rental income but also increase rental income pocketed per annum..correct?
Yes we have no mortgage on our PPR.

Can I ask another question??! We have a 2nd investment property with very small mortgage. Pre COVID it had approx 300k equity in it. When mortgage is paid off in 2 years time, can we release any if that equity in any way?

Thanks
 
If you will need to borrow money against a property in 2 years time you should probably not be paying the €70k off now, I would think the interest you would save in the interim will be offset by the legal fees in remortgaging, the risk of a higher interest rate or not being able to borrow then and, probably most important, the fact that the remortgage will not qualify for tax relief.
 
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