If you are in receipt of mortgage interest relief at source (known as TRS – “tax relief at source”) you may have noticed a monthly TRS credit on your mortgage statement. This effectively reduces your mortgage balance by the amount of TRS received.
Until recently, this monthly credit was granted to the borrower based on the amount of interest charged by the lender, in other words you got your TRS credit irrespective of whether you paid the interest on your mortgage or not. Effective from the 1st of January 2014 the goalposts have been moved. From that date Revenue has instructed lenders that they must grant TRS based solely on the amount of interest actually paid by the borrower.
Here’s an example:
Let’s assume you have an interest only mortgage, and that the interest on your mortgage is currently €1,600 per month and your TRS is €400. Previously the lender credited your mortgage with the TRS irrespective of whether or not you had paid any interest – so if no repayment was made in a month your mortgage balance increased by €1,600 interest charged less the €400 TRS less repayment made of €0 – a net increase of €1,200.
Now – under the new rules – if you don’t make any repayment in a month your mortgage balance will increase by the €1,600 interest charged less the €0 TRS less repayment made of €0 – a net increase of €1,600.
If you make a partial payment of the interest due, say 50% = €800, then the balance will increase by the interest charged of €1,600 less the €200 TRS (50%) less the repayment of €800 – a net increase of €600.
There are no changes to the TRS band or rate applicable to your mortgage. In simple terms the impact is as follows:
If your monthly mortgage repayment covers the interest charged in full, you will receive your full TRS credit;
If your monthly mortgage repayment partially covers the interest charged, you will receive a partial TRS credit which will be calculated on a pro-rata basis;
If you don’t make any monthly repayment you will not receive any TRS credit.
As you can see. this change will only impact those struggling to make repayments. In those cases the TRS was coming off their balance every month irrespective of whether the interest was paid. Now, in effect, their arrears will accrue at a faster rate.
The obvious question is why is this change necessary? Revenue’s response is that they are complying with the legislation introduced in 2002! Imposing 12 year old legislation on a scheme that has just 3 years left to run – heaping further pressure on those already in mortgage difficulties – can only be viewed as a callous act. It remains to be seen whether common sense will prevail…..