What is mortgage interest relief?

Mortgage interest relief is a government scheme aimed at reducing the costs of home loans to homeowners.  This means that a portion of the interest you pay as part of your monthly mortgage payment is paid for by the Government.

Lets take a simple example.  You have a €200,000 mortgage on a new house, with an interest rate of 5%, payable over 25 years.  Your monthly mortgage payment will be €1,320 which is made up of an interest payment of €833 and a loan repayment of €487.  It is the interest payment of €833 that may be eligible for tax relief.

With all the changes in recent budgets, there is much confusion as to what loans are eligible for mortgage interest relief and what rate the relief will granted at.

What type of loans are eligible for mortgage interest relief?

These are the main types of loans that are eligible for mortgage interest relief

• Initial mortgages on a new home
• Top-up loans on your existing home, where the top-up loan was used for home improvements

 For tax purposes, you can only have one home, therefore you cannot claim mortgage interest relief on more than one property at the one time.

For how long can I get mortgage interest relief?

This is the biggest change in the recent April 2009 Budget.  Tax Relief is now only granted on eligible loans for 7 years.

Lets take some examples.

Example 1:

John and Mary bought their home in 1990 and took out a mortgage payable over 25 years, with no changes since then.  Following the changes in the budget, they are no longer eligible for mortgage interest relief as the mortgage has been running for more than 7 years.

Even if, in 2006, they moved the mortgage to a new lender, Revenue will look to see what the initial reason for the loan was and if they deem it to be more than 7 years old then it is no longer eligible.

Example 2:

Patrick and Jane bought their home in 1990 and took out a mortgage payable over 25 years.  In 2006 they built an extension for €75,000 paying €25,000 in cash and increasing their mortgage by €50,000.

In this case, their initial mortgage no longer gets mortgage interest relief, but the interest payable on the top-up of €50,000 is eligible for mortgage interest relief for 7 years until 2013.

Example 3:

James bought a home in 1990 and took out a mortgage payable over 25 years.  In 2005 he moved to a new home, taking out a new mortgage.

James will get mortgage interest on his new home for 7 years from 2005 to 2012.

Example 4:

Yvonne bought a home in 1990 and took out a mortgage payable over 25 years.  In 2005 she increased her mortgage by €40,000 to buy the car of her dreams and to pay for a driving holiday.

Even though the mortgage top-up was within the last 4 years, this is not an eligible loan therefore no mortgage interest relief is available.

Am I a first time buyer (FTB)?

Higher rates of mortgage interest relief are available for homeowners who are classified by Revenue as first time buyers (FTB).  This term can be quite ambigious - lets look at some examples of who are first time buyers and you will see what we mean.

Example 1: Simple example

Des bought a home in 2005 on his own and has never previously had a mortgage.  Yes, Des is a first time buyer.

Example 2: Moving house

Schanelle bought a home in 2005 on her own and has never previously had a mortgage.  In 2008 she moved house.  Schanelle is still considered a first time buyer.  It doesn't matter how many times Schanelle moves house as she will still receive first time buyer mortgage interest relief for 7 years from the date of her first mortgage. 

Example 3:  Different FTB status for couples

In this example, Schanelle bought the second house in 2008 with her partner Dave.  Dave had never previously had a mortgage and is considered a first time buyer.  So Dave will receive first time buyer mortgage interest relief for 7 years from 2008 until 2015, 3 years after Schanelle loses her first time buyer status in 2012.

Example 4:  Previous Investment property

Niamh bought a house in 2005 as an investment property.  As such, she was not eligible for mortgage interest relief, as it was not her home.   In 2008 she bought an apartment as a home.  Niamh is considered a first time buyer.  She will receive first time buyer mortgage interest relief for 7 years from the date of her first mortgage on her home.

Example 4:  Previous mortgage abroad

Frances moved from the UK to Ireland in 2005 and bought a new home.  She had previously had a mortgage on a home in the UK for 15 years.  Frances is considered a first time buyer for 7 years from 2005, as homes abroad are not taken into account when deciding your Irish first time buyer status.

Are you missing out on Mortgage Interest Relief?

For more information

• Read our blog posts on mortgage interest relief