Will paying off mortgage early count against me in future?

Q&A: Dominic Coyle answers your personal finance questions

‘If I decide to pay off the mortgage, will this have a positive or negative effect on my future borrowing power if I decide to return and live in Ireland?’ Photograph: iStock

‘If I decide to pay off the mortgage, will this have a positive or negative effect on my future borrowing power if I decide to return and live in Ireland?’ Photograph: iStock

 

I have been living away from Ireland for almost nine years. Over this time, I have built up savings which I can put towards paying off my variable mortgage in full and start to save money in my Irish bank account from my rental income.

Until now, I have used that income to make high monthly mortgage repayments. As such I have no savings in Ireland.

I have paid all my taxes as a non resident landlord etc and I have no missed repayments. I have never had any other loans in Ireland, only this mortgage.

If I decide to pay off the mortgage, will this have a positive or negative effect on my future borrowing power if I decide to return and live in Ireland?

As I am quite young this is a real possibility and I would need a mortgage again in the future, if I decide to start a family etc.

Mr K.C., email

You’ve done everything right up to now and are clearly taking the time to think through your options. There seem to be two questions – using savings built up abroad to pay off your Irish mortgage and the impact early repayment would have on any future loan application.

As I’ve said countless times before, mortgage borrowing is the cheapest money you will ever have – even at the somewhat inflated rates charged by Irish lenders. This is especially true if you are one of those still holding on to a tracker mortgage rate though, from what you say about a variable rate, I assume this does not apply to you.

The basic principle is that a rational person will pay as little as possible for credit. Therefore, you should not pay off your mortgage while you have other, more expensive debt outstanding. The same applies obviously if you foresee the likelihood of needing to take out non-mortgage lending in the future.

But this is not a problem for you. You have not lived here for the past nine years, your only financial involvement in Ireland right now appears too be this property, its rental income and the mortgage.

On the flip side, I am assuming that you do not have other loans outstanding in the country where you re currently resident. If so, it might make more sense to use any savings or transfer any surplus from your rental income to pay those off.

However, as you say you have built up enough savings abroad to pay off this mortgage in full, it would appear you don’t have debt outstanding there either.

Documentary clearance

There is nothing to stop you using your savings abroad to pay off your Irish mortgage. You are out of Ireland nine years and therefore will no longer be tax resident here. As long as the savings come from appropriately taxed income in your current country of residence, there is no issue at all.

The Irish lender may require some documentary clearance to meet its money laundering obligations but, beyond that, there is nothing wrong with the move.

As to how early repayment will affect you on any future Irish borrowing, you are already fast-tracking payment of this loan. Paying it off in full will not adversely affect your chances of borrowing down the line.

The issue for banks – especially Irish banks over the last decade – is those people who cannot meet the minimum requirements of their loan obligations. That clearly would affect future access to finance but you note that you have never missed a payment: rather, you have shown the lender that you have stronger ability to pay than it required.

That will stand to you should you require an Irish mortgage in the future. It certainly will not count against you.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into

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