Case study EBS €40k arrears. Can't afford repayments?

Income details
Net monthly 2800 (inclusive of 3 kids child benefit)


Personal circumstances so we can calculate your reasonable living expenses The Insolvency Service has published Guidelines for Reasonable Living Expenses based on the family size, whether or not you need a car for work, childcare costs and other exceptional circumstances. By filling in this information, we (or you ) can calculate what your reasonable monthly living expenses should be.
One adult family or two adult family 2 adult
Do you need a car for work or do you use public transport? need car
Number of children 0- 2 years old: 1
Number of 3 years old children:
Number of 4 - 11 years old: 2
Number of 12 - 18 years old:
Monthly childcare costs: 0
Montly spend on special circumstances: e.g. exceptional healthcare costs



Home loanLender: ebs
Amount outstanding: 195000
Value of home: 170000
Interest rate: specify whether tracker or SVR or fixed rate fixed 5.25%
Monthly repayment 955
Amount in arrears 40000

Summary of discussions and agreements with the bank::
sfs sent to bank and awaiting decision



Other savings and investments ZERO savings and investments

Do you expect any lump sums in the medium term future? Redundancy, inheritances, injuries awards. no


How important is retaining the family home to you? Which of the following best describes your situation?

it is imperative we keep the family home


Any other relevant information

What is your preferred realistic outcome? For example:
debt forgiveness of the arrears

or €100K is parked for a number of years

Your monthly income is €2800 and your mortgage repayments are €955. Are you paying money towards your arrears? Can you give a break down of your monthly expenses, food, insurances, petrol etc

You may need to change your title to make it more meaningful to the advice you require!!
I think you need realistic advice rather than broad sympathy, so I'll look at this from your bankers perspective. You are seriously in arrears which indicates a probability of poor repayment record. Are you paying the bank anything at all?? A restructure would offer you very little. Even taking mortgage reduced to the value of the house the repayments would be 966pm over 30 years. this indicates that even the current monthly payment schedule of 955 pm has been reduced to this level.
With car plus 3 children insolvency guideline living expenses would amount to 2, 053 pm. Effectively leaving you 747 to meet mortgage payments. You may well believe this is not affordable, but it is in line with what a bank would require. However, at this level the repayment would not meet a sustainability test over a long term as it is below amount needed to cover interest (853pm). Unfortunately you are over-borrowed based on your current income and ultimately will need to consider the fact that unless you can increase your income you will not be able to hold on to the house.

i mite add the most we can pay now towards the mortgage is €600 a month ie. we are €350 short a month

our monthy living costs for a family of 5 (1 income ) is €2200

can breakdown if needs be

You may qualify for Family Income Supplement and a GP Visit Card (if not a Medical Card) and perhaps the Back to School Clothing Allowance (whenever 2015 scheme opens, June?) which might ease your situation somewhat.

The interest rate at 5.25% is very high. If that was cut to 4% or a little less the mortgage would be sustainable.

mortgage2015 said:

i mite add the most we can pay now towards the mortgage is €600 a month ie. we are €350 short a month

Click to expand...

44brendan said:

I think you need realistic advice rather than broad sympathy

Click to expand...

What would an extraordinarily generous offer from AIB be? To park €25k of your mortgage, so you are left with a 100% mortgage on the value of your home, i.e. €170,000 and to reduce the interest rate to their SVR of 4.25% (the lowest on the market!)

The interest alone on your mortgage would be €600 a month. You will not be paying any capital off the mortgage.

Monthly repayment 955
Amount in arrears 40000

How are you in arrears of €40,000 if the repayments are €955 and you are paying €600 a month? That means that you have been underpaying €400 a month for 100 months or over 8 years.

With that repayment record, there is no way that AIB could or should offer you a generous restructure.

Brendan

Ok guys

I have dealt with the IMHO and this is the suggested solution on the table views and comments welcome

Account decision:

Low Fixed Rate at 0.5% for 6 years. Repayments are 710pm based on existing remaining term.

These repayments are exclusive of TRS and insurance.

Remaining Term 30 Years

Woof and double woof!!! This is coming from IMHO and therefore must be based on some realistic expectation of approval. However, by agreeing to this the bank would effectively be losing money on the loan as their cost of funds over 6 years is likely to well exceed the .5% FR.
From your perspective it will give you some breathing space. However, as per my earlier post your living expenses will need to be reduced to insolvency levels to facilitate a repayment schedule at that level. But your alternative options are likely to be much worse as payment is likely to be less than equivalent rent for an alternative property. If the bank accept this deal you should definitely go for it. It would be a very generous deal!!

44brendan said:

Woof and double woof!!! This is coming from IMHO and therefore must be based on some realistic expectation of approval. However, by agreeing to this the bank would effectively be losing money on the loan as their cost of funds over 6 years is likely to well exceed the .5% FR.
From your perspective it will give you some breathing space. However, as per my earlier post your living expenses will need to be reduced to insolvency levels to facilitate a repayment schedule at that level. But your alternative options are likely to be much worse as payment is likely to be less than equivalent rent for an alternative property. If the bank accept this deal you should definitely go for it. It would be a very generous deal!!

Click to expand...

Hi Brendan,

Thanks for your comments

The IMHO put this forward to the bank and The bank have accepted it - the question is should i?

Living expenses can and will be reduced.

IMHO have obviously advised you that it should be accepted! What are your alternatives if you decline it? As I said it is a generous deal and gives you certainty on repayments for 6 years.
Ultimately the decision is yours, but it appears to be a very generous decision to me and over the 6 years will reduce your mortgage balance by 45k. All going well you will be in positive equity by this time and will have far more options than you have now!
If AIB are prepared to proposals such as this it is a very positive development for many distressed borrowers.

Brendan i have been privay to other deals that have been settled by aib

Debt write down by aib seems to be quiet common

They are genuinely trying to help customers

But you need to ask

Yes imho have suggested accepting same

I dont know the alternatives Yet.

No two ways about this but that is a great offer. What rate do you go on in 6 years?

If you make savings to your cost of living can you reduce the mortgage by paying extra. The less you owe in 6 years the better. You need to have the mortgage capital amount down to a manageable amount. Particularly if you cannot afford an interest rate of around 5% and none of us have a crystal ball on that.

Is this only a short term solution to a long term problem?

Yes of course it is! However, you need to assess the alternatives. This deal gives you a fantastic opportunity to clear the negative equity on your mortgage, largely at the expense of AIB (I.e. rate reduction to 0.5%). You have been presented with an excellent offer and if you decline it the alternative will be extremely problematic for you! Talk with your IMHO advisor and he/she will confirm that this is the best deal you can expect.

what repayment would i be looking at paying on 195K in six years time over 25 years

i know you havent got a crystal ball but assuming rates are below 5% and above 3%

Thanks guys

From the figures provided you may qualify for a family income supplement payment - you should explore this option.

http://www.citizensinformation.ie/e...es_and_children/family_income_supplement.html

Mortgage 2015.

K195 over 300 mths @ 5% = 1140.
K195 over 300 mths @4% = 1030.
K195 over 300 mths @3% = 925.
...............................................
I think it is now your decision on what you do.

If today and for a few more years the offer suits you ,I suggest go for it.
After 6 more years , god only knows how things will be !
Not much point in trying to see too far into the future?
Try and sort the (messy) present.
Good luck.

Hi mortgage2015. I'd say jump for this offer. You'd owe nearly €50000 less in 6 years.

mortgage2015 said:

Is this only a short term solution to a long term problem?

Click to expand...

Yes it is, as in it's can kicking, but it's also a fantastic solution for you. In 6 years you won't owe 195. You'll be at about 150K. Your house is already valued now at 170K. So you'll be way out of NE. When you are out of NE you are not tied to one bank, just this week we see switchers are being offered reduced interest rates.

You can also further reduce your capital amount if you make savings elsewhere, even a 100 Euro a month is somehting, bringing down the 195/150 further.

Positives:

Unbelievable interest rate
6 years sorted
Negative equity gone
Capital being repaid
You couldn't rent anywhere as nice for this
You're buying your home
You get to keep your home
You've 5 years to put yourself in a stronger financial position
No more stress
Who else has their own family home at 710 a month