- interest rates on the mortgages are currently averaging less than 1.0%
- interest expenses are tax deductible
- inflation is still above 4%
- there is no shortage of good shares with yields well above 1.0%
- the rental properties produce a positive cash flow after all expenses including the principal component of the mortgage payments
- if I had to borrow today, I would probably end up paying 2.15-2.4%
However, the interest rates are HIBOR based floating rates - they get reset either every month or every three months. If HIBOR rises then the interest rate I am paying on my mortgages will also rise. The question is, at what point should I start making additional repayments?
Without wishing to over analyse the situation, I would start making additional repayments if any of the following applied:
- interest rates were higher than the rate of inflation
- the investment properties were producing a negative cash flow
- interest rates were higher than the yield on other available investments
It also helps that all of the mortgages are P+I - each month the balance gets a little smaller even without any additional payments and, as the balances get smaller, the impact of rising interest rates becomes less significant.