All results are before tax.
Mortgage interest can be set against rental income for tax purposes.
This makes it possible for all the mortgage interest to be tax deductable,
reducing the effective cost of borrowing by the tax rate payable.
For example a gross mortgage rate of 7% pa equates to a net mortgage
rate of around 5.25% after 23% tax relief. Other expenses may also
be tax deductable.
The advantage gained from gearing (borrowing against) your property
only works if the net yield plus the property growth exceeds the mortgage
interest rate after allowing for expenses. A quick way of determining
this is to compare the ROI obtained with and without a mortgage. A
message appears under the summary to indicate whether a higher return
is acheieved with or without borrowing. If gearing is positive, the
higher the loan the better. But if the amount borrowed approaches
the property value, the return may be excessive and the calculation
of Return On Investment will fail (indicated by an error message).
The term should be restricted to less than about
5 years as no account has been taken of increasing
rental income, meaning the yield falls as the value
of the property rises. The longer the term, the more
effect the lowering yield will have with this calculator.
But in reality rents are likely to rise with inflation
wheareas the mortgage interest will fluctuate around
a relatively level figure since the debt it services
remains constant. This means the net income should
rise by more than inflation. Note that higher yielding
properties may well grow at a lower rate.
Please note: This calculator should be used for indicative
purposes only and should not be taken as representing
advice. Always get a full quotation from your lender
or other professional adviser before purchasing a