Retire with debt on rental property

[moneymakeover]

Planning to retire in 2030

The bank has given me a split mortgage on one rental property, 180k is interest-only until 2045
The monthly interest tracker at 1.1% is €165 which is no bother.

Is there any reason i should try to pay off this interest only loan early?

I guess in 2045 I'll be forced to sell to pay bank the 180k. Or remortgage.

In terms of inheritance it would be nice to own outright. Is that the only reason to pay off the 180k?

Is the arrangement by the bank intended to be generous to me?

 

[moneymakeover]

Could you not set out the information in a clear table so that we don't have to guess what you mean from the various fragments of information?

It will be very hard to answer your question otherwise.

Brendan

Rented Apartment. Split Mortgage
	as of now	Type	Term remaining	Monthly Payment
Mortgage1	113,000​	Tracker Capital and Interest 1.1%	25 years	408​
Mortgage2	180,000​	Tracker Interest Only 1.1%	25 years	165​

 

[Brendan Burgess]

OK, that is much clearer now.

You have a rental property with an interest rate of 1.1%.
You get tax relief on the interest, to the net cost to you is about 0.6%

Do you have a mortgage on your family home? If so, that would be a much higher priority to repay as I assume that the mortgage rate is higher than 0.6%.

Have you maxed out your pension contributions? If not, that would be a much higher priority than repaying a loan which is costing you 0.6%.

I presume that if the bank gave you such a generous deal that you are not flush with cash.

The only reason you might pay off the warehouse in the meantime would be if you were planning to trade up your family home. The existence of a split mortgage would prevent you from getting a mortgage elsewhere.

I would not remotely worry about needing the cash to pay off a capital sum in 25 years' time. So much can happen in the meantime.

Brendan

 

[Brendan Burgess]

There is one other reason you might consider for reducing your mortgage.

If the property is in negative equity, you might get some comfort from reducing the mortgage to the value of the property.

I think that this is more a psychological argument and has little financial merit.

With 25 years to go, and with the rent presumably covering the mortgage in full and the tax, negative equity would be academic.

Brendan