Switch to repayment mortgage or invest extra money

C

CKT

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Hi looking for advice, I have investment property with my brother rented out.
The house is worth €265k we have an interest only mortgage of €138k we also have about €12k sitting in a joint account not making any money.

It is currently costing us 674.74 a month and we are getting rent of 740, therefore making a profit of 65.26 a mth. (Taxes not deducted)

If we started to pay a Repayment (wording corrected by Brendan)mortgage it would cost us an extra 1502 a year, (which we could pay with our 12k), but it would pay 2704 off the mortgage. Therefore the real cost would be 1201.

I know we can claim relief on the interest paid, but would it make sense to do this??
Our would we be better off paying the 12k off the mortgage, or investing it elsewhere??
 
Re: Switch to principle payments or invest extra money

Invest elsewhere if you can invest at a rate above your mortgage interest rate, which is easily done for the sum in question.
 
Re: Switch to principle payments or invest extra money

Do you have a mortgage on your own home? Pay that off first (assuming you don't have any higher interest loans such as credit cards, car loans etc).
 
Re: Switch to principle payments or invest extra money

Yes do have mortgage on my own home, buy myself and bro have agreed not to take the money ourselves, and treat it as seperate
 
Re: Switch to principle payments or invest extra money

Paying off the capital means decreaisng the amount you can claim in interest relief and increasing the CGT payable when you sell the property.

leave the mortgage as is, rents are likely to increase so you will want to keep a sizeable mortgage.

Put the 12k in something else.
 
Re: Switch to principle payments or invest extra money

Stifster said:
... and increasing the CGT payable when you sell the property...
Click to expand...

How so ? CGT will depend on sale value - initial cost cost of house
 
Change your agreement with your brother.

Take €6k each out of the account.

You pay off the mortgage on your home with your money. Let him do as he wishes with his.

It makes no sense to pay off the mortgage on an investment property when you have a mortgage on your home which attracts little or no tax relief.

Brendan
 
Re: Switch to principle payments or invest extra money

jpd said:
How so ? CGT will depend on sale value - initial cost cost of house
Click to expand...

My apologies. I have an involuntary brain freeze every now and then on that simple little point....
 
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