Mortgages > Don't Let The Tax Tail Wag The Commercial Dog! - Should you be fully geared with investment property?

Don't Let The Tax Tail Wag The Commercial Dog! - Should you be fully geared with investment property?

(ContentDesk) May 20, 2004 -- We property investors are very good at gearing ourselves up to the hilt. We maximise the available mortgage so that we don't have to use too much of our own money and we get tax relief on all the interest.But is that always the best way?I suggest not. Later in life we will probably be looking for our properties to provide our retirement income. We can do this in two ways. Either by periodically selling off properties and living off the proceeds, or by using the net rent to pay our living costs.Ultimately it is down to cashflow, and if you choose the second option, your cashflow is better if you pay off the mortgage than it is if you keep the mortgage.

Let me demonstrate with an example. I have left out management and maintenance costs to keep it simple, but they would be the same in either scenario.Lets say you have six properties rented out at ?500 per month, and they are all mortgaged with the mortgage costs at ?300 per month, which isn't unrealistic at the moment. For simplicity, I will assume you pay tax at a straight 20%.Scenario 1If you have mortgages, you receive ?3,000 per month and pay out ?1,800 in mortgage interest (on which you get tax relief). So your net income is ???????1,200???Less 20% tax?????????????
240You keep?????????????
960Scenario 2If you have paid off your mortgages, you still receive ?3,000 per month, but you pay out no mortgage interest.So your net income is ???????3,000???Less 20% tax?????????????
600You keep?????????????2,400Quite a difference isn't it!Now I accept that a lot of people could live on ?960, especially if they have paid off their own mortgage, but wouldn't ?2,400 make life a little more comfortable?You need to consider all factors when making your decisions. As I used to advise my accountancy clients, you should never let the tax tail wag the commercial dog.

Whilst gearing up to the hilt gives you tax relief, you only save the tax element, you still pay the rest out. Remember compounding, how much are the mortgage lenders making over 25 years? Have you read the small print recently?I for one, will be considering a move to repayment mortgages further down the line..

Best Mortgage lenders

The greatest advice that one can get while deciding on a mortgage loan is to shop around. Different mortgage companies have different policies and different prices. Hence, it becomes quite profitable to the mortgage buyer to have some knowledge of mortgages and to browse the market for the best deal.

The best place to begin hunting for mortgages is in the newspapers and on the Internet. Newspapers carry daily advertisements of mortgage selling companies. In most advertisements they mention their current interest rates and the points, which make all the difference between two mortgage companies.

This gives a good preliminary idea of which mortgage company would be the best to select. The Internet is more extensive. Websites of mortgage companies contain details on their various programs and the all-important customer feedback comments. Let these be the guiding force in selecting your mortgage company.

The most important thing to remember while looking...

Best Mortgage lenders

Mortgages > Best Mortgage lenders

Atlanta Home Mortgages

When purchasing a new home in Atlanta, a buyer should consider the mortgage interest rate and his own financial capability. Then he should think about the lending period of the home mortgage. Generally in the case of a fixed rate mortgage, where the rate of interest stays the same, the time span ranges between 15 years to 30 years.

If the borrower goes for long-term loan, obviously his interest payment will be higher. However, he can avoid that without reducing the initial size of the mortgage through higher monthly payments of the principle amount. But higher monthly installments reduce the flexibility of the borrower.

To avoid this he may opt to pay one extra monthly payment every year.

The borrower may also choose an adjustable rate home mortgage in which interest rates fluctuate with market interest rates. The interest rates of such mortgages will be lower when compared to those of fixed rate mortgages. In such a mortgage, the borrower pays lower...

Atlanta Home Mortgages

Mortgages > Atlanta Home Mortgages

Dallas Interest-Only Mortgages

You are buying the home of your dreams with an "interest-only mortgage!" You'll get a low mortgage payment, and you'll maximize your tax deduction, all on your current income! Everything seems to be going good. But have you actually understood the notion of interest-only mortgage and how it functions?

Well it may break your bubble but there is no such thing as an interest-only mortgage -
because eventually you'll have to pay the loan principal as well. In other words, with an interest-only mortgage loan, you pay only the interest on the mortgage in monthly payments for a fixed term. After the end of that term, typically five to seven years, you pay the balance in a lump sum, or start paying off the principal. Net net! What you're really getting is an interest-only payment method which can be combined with any type of conventional mortgage.

An Interest only mortgage can be an excellent option for some borrowers, who have a valid use for a lower...

Dallas Interest-Only Mortgages

Mortgages > Dallas Interest-Only Mortgages

Adjustable Rate Mortgages - Understand the Benefits Compared to a Fixed Rate Mortgage

Adjustable rate mortgages can be very tempting to home buyers, yet they carry a great deal of uncertainty. Fixed rate mortgages offer rate and payment security, but they are more expensive. It is important to weigh the pros and cons of ARMs and fixed rate mortgages before you decide which is right for you.There are many benefits with an adjustable rate mortgage. One benefit is that they usually feature lower rates and payments early on in the loan term. Lenders can use the lower payment when qualifying borrowers, therefore borrowers can purchase larger homes than they could otherwise afford.

ARM's allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay closing costs and fees, borrowers can just sit back and watch their rates fall without worrying about these extra costs. Adjustable rate mortgages can help borrowers save and invest more money. Someone who has a payment that is say $200 less with an ARM than with a fixed-rate mortgage for...

Adjustable Rate Mortgages - Understand the Benefits Compared to a Fixed Rate Mortgage

Mortgages > Adjustable Rate Mortgages - Understand the Benefits Compared to a Fixed Rate Mortgage

Boost Your Business with a Commercial Mortgage

Long term commercial finance, in the form of a commercial mortgage, offers many small and medium sized enterprises (SMEs) the ability to invest in their business with new technology, new or refurbished premises, or increased stock levels.In the past, it tended to be only larger organisations with a proven track record who could obtain commercial mortgages. A large number of younger/smaller businesses were unable to obtain this type of commercial finance and, as a result, many businesses have been forced to rely on expensive short term finance or left to use their owners' residential property as security.Fortunately, this gap in the market is now being targeted by specialist commercial lenders who are willing to serve the commercial mortgage needs of SMEs and owner-managed businesses. The problemIn the past, it has been difficult for small business borrowers, self-employed traders, and partnerships to raise...

Boost Your Business with a Commercial Mortgage

Mortgages > Boost Your Business with a Commercial Mortgage

First Time Buyer Mortgages ? Transforming Homeless into Property Owners

Having just settled in life, you are finding the rentals putting too much of a burden on your finances. Nevertheless, you continue the payments thinking that purchasing a home would be practically impossible. There are many expenses that one has to necessarily make in order to just make a bare subsistence. Though the list differs with each individual as each has a subjective concept of the necessities, it is difficult to accumulate enough savings to pay for a house.The following characterises most of the first time buyers. However, a surprise awaits them in the form of first time buyer mortgages that accept first time buyers with their inherent characteristics of financial weakness.It is wrong to believe that first time buyer mortgages are like any other mortgages, and have been so named by lenders to attract attention.

A first time buyer mortgage is designed primarily for the people who are buying homes for the first time. The method combines the features of mortgage along with...

First Time Buyer Mortgages ? Transforming Homeless into Property Owners

Mortgages > First Time Buyer Mortgages ? Transforming Homeless into Property Owners

Online Mortgage

The main advantage of applying for online mortgages is their
convenience. It is relatively easier to apply for an online mortgage than it is
for an offline mortgage. The Internet is a wonderful tool and one which you can
take full advantage of when looking for the best deals in online mortgages.
Many online mortgage lenders offer competitive packages for home buyers and
most of these offer free online mortgage quotes for your perusal. As a perk,
some of these sites also offer free online mortgage calculators to help you
calculate the costs and gains of the loan programs they have to offer.
The Benefits of Online Mortgages
Borrowers can stay involved with their mortgage dealings by applying for
a mortgage online.

With traditional mortgages, lenders may not give out enough
information, leaving the borrower practically in the dark throughout the whole
process. Online mortgages...