Nope.
Used credit cards to part buy an investment property - where can I refinance it?
- Thread starter Sean Og
- Start date
Absolutely 100%
But they are borrowed monies to purchase so the interest will be deductible. And next tax returns it will be 100% again I think. For 2019 returns. If you borrow money to do renovations etc, also interest is allowed.
Revenue just call it mortgage interest relief as that is what most people have.
If you do not mind my saying so, for someone so clued up on switching mortgages I’m surprised you didn’t look up,all this before purchasing. Anyway for sure you need a good broker.
Hi Sean,
I'm drawing a bit of a blank on this one.
Property being outside a major city limits the options in terms of a 'mortgage'. I can see why banks aren't interested in what's effectively a debt consolidation.
If you get nowhere re a mortgage, you could try for a secured loan. Any bank giving credit above a certain amount (around 60k) will look for security and you can offer the house as security. Rates are going to be close to 7% instead of 5%. Which means the after tax relief is costing you more than your PPR mortgage. You need to get the credit card debt refinanced quickly either way.
It doesn't have to be a mortgage to get tax relief, but you can only get relief on the loans that were borrowed to purchase or renovate the property.
@cremeegg raised an interesting angle re taxation of Case I Vs Case V income. I think you need to get some tax advice on this, with all the facts of your case. Especially if you're trying to arrange for income to be taxed in your wife's name and if you make use of the house yourself during the year.
Red.
I'm drawing a bit of a blank on this one.
Property being outside a major city limits the options in terms of a 'mortgage'. I can see why banks aren't interested in what's effectively a debt consolidation.
If you get nowhere re a mortgage, you could try for a secured loan. Any bank giving credit above a certain amount (around 60k) will look for security and you can offer the house as security. Rates are going to be close to 7% instead of 5%. Which means the after tax relief is costing you more than your PPR mortgage. You need to get the credit card debt refinanced quickly either way.
It doesn't have to be a mortgage to get tax relief, but you can only get relief on the loans that were borrowed to purchase or renovate the property.
@cremeegg raised an interesting angle re taxation of Case I Vs Case V income. I think you need to get some tax advice on this, with all the facts of your case. Especially if you're trying to arrange for income to be taxed in your wife's name and if you make use of the house yourself during the year.
Red.
Ideas:
Review credit card market and see who will offer a transfer balance and interest free to give yourself some more time.
Try mortgage brokers? Never used one but people say they are better for edge cases.
As someone else said try dilosk?
Have a clear business case written down with a file for supporting docs to show all credit was for property. And show income.
If no more cheap credit available try to remortgage longer term/payment break your ppr to reduce that payment to allow faster pay down of expensive debt.
If no cheaper credit forthcoming use cu 20k to pay down most expensive debt. Tax saving on high rates does not make high rates worthwhile
Switch your ppr again?
Do any of the crowd funding/peer lending platforms work in Ireland? There are several property focussed ones in America. Might be cheaper than cu.
Review credit card market and see who will offer a transfer balance and interest free to give yourself some more time.
Try mortgage brokers? Never used one but people say they are better for edge cases.
As someone else said try dilosk?
Have a clear business case written down with a file for supporting docs to show all credit was for property. And show income.
If no more cheap credit available try to remortgage longer term/payment break your ppr to reduce that payment to allow faster pay down of expensive debt.
If no cheaper credit forthcoming use cu 20k to pay down most expensive debt. Tax saving on high rates does not make high rates worthwhile
Switch your ppr again?
Do any of the crowd funding/peer lending platforms work in Ireland? There are several property focussed ones in America. Might be cheaper than cu.
Brendan Burgess
Founder
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Let's look at the numbers here
Rental income: €16,000
Credit Union Interest: €2,400
Credit Card: €5,000
Profit before other costs and taxes: €9,000
So while part-financing an investment property with a credit card loan is unorthodox, and even if young Sean is unable to refinance, this is still a profitable investment. (It's especially profitable in the first year due to the six months interest-free period)
If he can refinance it at mortgage rates, it's even more profitable.
There is no point in selling it again.
Seán
There is no advantage in borrowing on an investment property to refinance a home loan. The interest would not be tax deductible and the interest rate would be higher than you are paying on your mortgage.
You can borrow against your home to buy or refinance an investment loan and the interest is tax deductible.
So you need to borrow €58,000.
As Bronte pointed out, see if you can refinance or switch the mortgage on your home. That would be the cheapest.
As Red pointed out, try Finance Ireland or Dilosk
If none of those options is available, ask the Credit Union for more money.
And finally, use the rental income and your savings to aggressively pay down the credit card loan.
Brendan
Rental income: €16,000
Credit Union Interest: €2,400
Credit Card: €5,000
Profit before other costs and taxes: €9,000
So while part-financing an investment property with a credit card loan is unorthodox, and even if young Sean is unable to refinance, this is still a profitable investment. (It's especially profitable in the first year due to the six months interest-free period)
If he can refinance it at mortgage rates, it's even more profitable.
There is no point in selling it again.
Seán
There is no advantage in borrowing on an investment property to refinance a home loan. The interest would not be tax deductible and the interest rate would be higher than you are paying on your mortgage.
You can borrow against your home to buy or refinance an investment loan and the interest is tax deductible.
So you need to borrow €58,000.
As Bronte pointed out, see if you can refinance or switch the mortgage on your home. That would be the cheapest.
As Red pointed out, try Finance Ireland or Dilosk
If none of those options is available, ask the Credit Union for more money.
And finally, use the rental income and your savings to aggressively pay down the credit card loan.
Brendan
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That would cost way too much to do. And it's making it way too complicated.
Why not? Why would it matter what kind of borrowings you have to purchase. Or indeed repair. I know I told the Credit union one time I was purchasing a car, but instead I used the money to renovate (it was easier to get a car loan at the time). But whatever I told the CU, as far as my tax returns were I was able to write off the interest because I could demonstrate, if necessary, that the money was used to pay for renovations.
Burgess is right about one thing though. Sean should use rent/income/savings to pay down the credit card loan first. If necessary he can extend his CU loan (if that's possible). Now personally I think this is another crazy suggesting but if Sean is going to get close to the CC deadline for interest he could possible repay the CC loans using another credit card to give him another months grace. (I'm not sure how much taking out money is on CC's as I never do it - because it's way expensive - but maybe an extra month is possible that way)
Why not?
It's a bad idea, but there's nothing to prevent it.
Further to this, once his bank finds out he has another property they might want instead a lien on this. Meaning legals, property in both names etc, which takes time.
If they are likely to refuse him, he could be inventive (seeing as he has a great imagination already) in getting nearly 60K off his current mortgage provider. Not so sure how lax the banks are nowadays, one time they didn't even look for receipts for renovations, back in the day, then they tightened up and wanted receipts for everything, then the Celtic Tiger, then back to seriousness with the recession etc etc etc.
Is it bad, well yes and no. Our first house purchase I ran up three made up CU loans consecutively in order to build up my credit so that I could borrow a serious amount to get us over the line on a future house purchase. So I borrowed for the stamp duty.
Brendan Burgess
Founder
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- 53,725
I thought that this was an interesting idea and worth crunching the numbers.
€180k @2% stamp duty: €3,600
4 sets of legal fees: €4,000
Total costs: €7,600
Capital Gains Tax €50k @33% = €16k
You could disregard the CGT as it will be payable anyway if you ever sell the property.
At present he is paying €7,400 interest on €58k of borrowing
He could probably reduce this to 4% of €58k or €2,300
So the annual saving would be about €5,000
Paye, Prsi, Usc, cleaning, laundry, greeting, advertising, insurance, waste management, heating, electricity, security and overall management of property and the odd bad client/clients, etc, etc. I'm delighted it works for you and you like the hassle. In my opinion you'd need to be living close by with plenty of time on your hands or your wife's. As for mortgage coming from a bank for this, I think you'll be very lucky and the rate won't be too nice if it comes to pass. You don't need much to go wrong for this gamble to go belly up. I'm a bit puzzled why it sold for the bargain price you say if it was such a good investment or was it only you that knew of its sale?
An option that Sean could look into is a switch & equity release on his PPR to cover the entire, with one of the non-bank lenders as they'd allow the personal debt to be paid off. He'd be paying just over 3%, and after 12 months he could switch to any mortgage provider.
I don't think the route of selling and buying back is necessary. Even without a mortgage he should be able to consolidate the loans as a single personal loan under 7%.
I don't think the route of selling and buying back is necessary. Even without a mortgage he should be able to consolidate the loans as a single personal loan under 7%.
Thanks for all the advice lads, my broker is waiting for ICS to launch their residential mortgages to all areas of the country, not just Dublin like they are currently doing. He is hopeful that i can remortgage my PPR and use the equity to repay the €58,000 from CU and the 2 Credit cards.
Someone earlier asked about getting another Credit Card and transferring the balance across to the new credit card at 0% interest for 12 months. Well i am already well down that road and hopefully that might work and take the immediate pressure of the 16.8% on the 2 CC which is coming very soon. If that fails and i need the money fast i think i will go back to the C.U and ask for a debt consolidation loan to repay the 2 CC.
Regarding the house , it's really beautiful with fabulous views, 4 bedroom can sleep 10 and i will get €1000 a week in July and August. The people i bought it off paid €305,000 for it in 2006 when it was built. It was on the open market with a local agent but we were the first ones to place a bid and gave the asking price and got it on the understanding that we could close the sale asap. Hence the rush to get the finance in place etc and ending up with the 2 CC''s.
Someone earlier asked about getting another Credit Card and transferring the balance across to the new credit card at 0% interest for 12 months. Well i am already well down that road and hopefully that might work and take the immediate pressure of the 16.8% on the 2 CC which is coming very soon. If that fails and i need the money fast i think i will go back to the C.U and ask for a debt consolidation loan to repay the 2 CC.
Regarding the house , it's really beautiful with fabulous views, 4 bedroom can sleep 10 and i will get €1000 a week in July and August. The people i bought it off paid €305,000 for it in 2006 when it was built. It was on the open market with a local agent but we were the first ones to place a bid and gave the asking price and got it on the understanding that we could close the sale asap. Hence the rush to get the finance in place etc and ending up with the 2 CC''s.
With a rumoured crack-down on landlords ignoring the new short-term let restrictions, do you have the correct planning in place? If the crack-down does come, I'd imagine the financial institutions may look for confirmation on such properties.
I was basing it on T&Cs from when I took a personal loan from Barclays, I remember it stating the funds could not be used towards a house deposit. Good to know it is possible.