Better off not paying down mortgage as a Landlord.

nudedragon

Hi there,

My wife and I have a rental property with 20 years left on our mortgage, with an outstanding balance of 100K. This is fixed at 2.8% for the next 8 years. This is currently leaving us a monthly repayment of roughly 560 euros.

As the property is rented under the HAP scheme we as landlords are entitled to claim 100% relief on the interest paid on the mortgage as an expense, which is around 2800 euros annually.

Our current strategy is to not make any extra payments on the loan, as it seems the money is as cheap as we will ever be able to get and the fact that the interest is claimable also is a benefit. Instead of making the overpayments we are using the Irish money to invest overseas, where we live and are currently getting 5.5% PA on these savings. The plan would be to use these savings then to make an overpayment on our foreign property in the future.

The Irish property will be sold eventually, which will bring its own tax headaches but at the moment it is proving to be a good income source with the rent coming in.

The query I have for anyone with an educated opinion, is are we on the right track? The general rule of thumb in regards to over payments and savings is that you put your money where the rate is highest.

I am aware that in 8 years time when the fixed rate expires, we could be working with a lower principal if I went down the overpayment route.

Any thoughts would be appreciated.

Nody

You are correct that there's no reason for you to make accelerate down payments now if you can get 5.5% PA now (assuming it's a safe option like bonds, bank account rather than say P2P lending or similar) instead and if it your investment comes due within the 8 years you have the luxury of waiting to decide where you allocate the money.