Can I claim interest tax relief if I get a top-up mortgage?
0 Comments | Mail on Sunday (London, England), The, April 25, 2010
Byline: Colm Rapple Ireland’s most trusted finance and money writer colmrapple@mailonsunday.ie
Q My mortgage is nearly paid off but I am thinking of getting some major structural work done to the house, including an extension. I hope to get a top-up mortgage. Will I be entitled to tax relief? Would it be a good idea to borrow a bit more than I need and use the extra to pay off some other debts? I’ve a secure job and am 15 years off retiring.
A Interest relief is available on top-up mortgages used to fund structural improvements to your home. Assuming that it is more than seven years since you bought your first home, your entitlement would be to tax relief at 15pc on up to [euro]6,000 a year paid in interest on the loan. The upper limit is [euro]3,000 for single claimants.
Top-up mortgages are certainly available for those, like yourself, with plenty of equity in their homes. The interest rate should be more or less in line with whatever you are paying on your existing loan. If you are on a tracker mortgage, you may be asked to replace it with the larger fixed or variable rate loan. That would impose some extra cost but if your existing mortgage is small, that cost may not be significant.
It could make financial sense to borrow more and use it to pay off other debts but you need to recognise the risks. The interest rate on the topup mortgage would undoubtedly be lower than the rates you are paying on credit card or personal loans. But that reflects the fact that the loan is secured on your home.
Default on a mortgage and your home could be sold to repay the debt. It doesn’t happen often but it can happen. The extent of the risk depends very much on the individual. It’s relatively low for someone in a secure job.
Top-up mortgages are most suited for major spending needs such as home improvements or education.
Using some of the money to pay off other existing debts is fine as well, so long as you don’t run up debt again to fund short-term needs such as changing the car or financing a holiday. A car loan should be paid off before the car is replaced and a holiday loan repaid before the next holiday comes around.
Q I had to close my Halifax credit card account since it is closing up shop. I was able to pay off the outstanding balance but the bank added a [euro]40 Government stamp duty to my outstanding balance. I though that only applied to cards that were open on April 1 and I closed it in March. Am I being done?
A No. There is an annual Government stamp duty of [euro]40 on credit cards and it is, as you say, applied on April 1. But it seems Halifax charged it in arrears. So the charge on your credit card statement relates to the year ending a few weeks ago, on March 31, 2010.
Those who have yet to close their accounts will be charged [euro]40 for the year to March 31, 2011, but will be able to get credit for it, if and when they open another credit card account.
Q I saw recently that house insurance costs should be coming down because of a fall in building costs. Will my insurer automatically take account of this?
A I doubt it. Insurance costs are, in fact, tending upwards driven by poor investment returns and increased claims. No doubt what you saw was the latest building cost survey from the Society of Chartered Surveyors. According to it, home building costs have fallen by between 7pc and 9pc over the year to February. The largest reductions are in Dublin and come on top of falls of about 5pc the previous year
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