Do I lose mortgage interest relief if I fall behind on repayments?
Published 26/04/2015 | 02:30
I fell behind on my mortgage by a few months last year. I got my annual mortgage statement recently and saw that I didn't get mortgage interest relief for those months.
Is this a mistake? If not, can I still get the tax relief if I catch up on my missed repayments?
John, Carrickmacross, Co Monaghan
Mortgage interest relief could be looked at like a helping hand for the interest you pay on your mortgage.
Effectively, the Revenue Commissioners pays a certain amount off your mortgage each month. The relief is paid at source - so you don't have to claim it back at the end of a year.
As long as you are making repayments, you will get this tax break. However, up until January 2014, the relief was granted based on interest charged by your lender in a given year; now it is calculated based on interest actually paid.
Therefore, if you missed a few payments last year, you won't have been granted the relief in those months.
If you subsequently make up those payments in the next year, you will obviously pay a higher interest amount and therefore you will get the relief back at that stage.
However, be careful - if you are already getting the maximum annual relief through your usual mortgage repayments, then you will need your lender to provide you with documentary evidence that the "extra" interest you are paying is the interest you did not get relief on previously.
You should then make your case to Revenue who will have to deal with the issue manually. It would be a good idea to talk to your lender first before making your case to Revenue.
Remember, if you don't do this yourself, it will not happen automatically.
I want to invest around €200 per month into an investment for five years or more and would be willing to risk 10pc of my money.
I would like to trade up after about seven years - and to have a small sum saved up by then. The last few years, I have been setting up one savings account after another, which doesn't make sense now with Deposit Interest Retention Tax (DIRT) so high - even if I get an interest rate of 4pc. I want an investment that is relatively passive, which could eventually achieve a return of 6pc or more a year and which won't nail me on charges. Am I asking too much?
Fiachra, Raheny, Dublin 5
No, you are not asking too much. Your biggest difficulty is navigating through a very complex area, where there are lots of investment choices and various charging structures.
You need to break your decision down. Firstly if you are saving for five or more years, it is likely that you will lose money if you go the deposit route.
Yes - on paper, you will make money. But in the real world, inflation will eat away at your money - so you will be at a loss. Once you realise, which I think you have, that you are almost guaranteed to lose money investing on deposit for that length of time, you will have to turn up the risk volume slightly.
You need to decide on the level of risk you are willing to take - you mention you can take risk with 10pc of your money, but you need to tease this out for yourself.
An independent financial advisor can help you see how comfortable you are with risk or you also could do this alone by completing an online risk assessment questionnaire -most of the life companies will give you free access to an assessment on their website.
When you know what risk you can tolerate, it will allow you to decide how your money is spread across different types of investment - for example, how much should go into shares, bonds, commodities, property and cash. It's said that 92pc of the return from an investment will be derived from how you divide your money between the various investment types. The other 8pc of the return will come from timing and/or the fund manager's skill.
When you have decided how to spread your money across various investments, you can then start reviewing fund choices. Whether you use exchange-traded funds (ETFs - funds which simply track a market or an active fund manager that tries to add value by hand-picking stocks) or an actively managed fund is a long-standing debate.
Both investment routes have their merits - ETF's should be cheaper, for example. However, you need active management in certain situations. My rule of thumb is: provided it is cheaper, go passive - unless there is good reason not to.
Be sure you understand the charges that come with any investment you are taking on. Look at upfront and ongoing charges - as well as the cost of any penalties if you exit early.
A good benchmark to use would be an investment where 100pc of your money is invested each month, with an annual management fee of no more than 1.5pc - and no exit penalties.
Eoin McGee is the chief executive at Prosperous Financial Planning
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