What actions will bank take if 3 months in arrears.

See below for details on income/expenditure. I have a query about what the consequences of failing to pay a mortgage for a period of about 3 months.
We have engaged with the bank although we are not in arrears at present, we are really struggling and sent off a SFS and have been dealing with the MARP team there. They have declined our application for any period of interest only or a moratorium to help us get our finances under control.

I am wondering what will happen if we fail to pay the mortgage for 3 months or so but then resume, likely with increased payments to clear the resulting arrears.

Also, would it be better/any different if you made a smaller payment over 6 months vs no payment for 3 months?



Income details
Net monthly(i.e. after tax) Income self: 3700 per month – employed, permanent, small but regular (yearly) increases of approx 3%. Yearly bonus (not guaranteed but up to 2000 net)

Net monthlyincome partner/spouse: 1870 per month – employed, permanent.
Income history:New job 4 months ago with stable income as above. Prior to that, part time position with variable income between 1200 to 1800per month.

At the time we took the loans/mortgage mentioned below my partner had a stable net income of about 2200per month

That period of instability caused us to max out our credit cards, get through all of our savings


Amount of child benefit received n/a
Amount of Mortgage Interest Supplement received n/a

Personal circumstances so we can calculate your reasonable living expenses
Two Adult Family
Do you need a car for work or do you use public transport?We live in a rural area (15 minute drive from nearest town, an hour from work). Until 3 months ago we had 2 cars on the road but we have recently reduced to 1 car. Monthly transport costs have reduced by approx 500euro as a result. Prior to this we were unable to use only 1 car due to working in different areas/different start/finish times.

No Children



Home loanLender:AIB
Amount outstanding:252,000
Value of home:approx 250k
Interest rate: SVR – 4.0%
Monthly repayment– 1258 (less TRS approx 160)
Amount in arrears: none at present

Summary of discussions and agreements with the bank: 3 months ago, sent SFS and letter requesting period of interest only in order to assist us with getting in a better place financially. We have 2 loans outstanding one of which is in arrears (with CU), multiple Credit Cards, Overdraft etc and we found ourselves sinking fast.



Credit UnionAmount of shares3.5k
Amount of loan outstanding13.5k
Monthly repayment600 but only paying 300
Term left1.5 years approx

Arrears: approx 5k


Other loans and creditors
Overdraft - amount outstanding:2000
Credit Card - amount outstanding7.5k across 4 cards
Credit Card - monthly amount you are payingapprox 500
Term loan Amount outstanding3900
Term loan term left approx 1.5 years
Term loan - monthly repayment 350
Term loan - interest rate8.45%


Other savings and investments

None

Do you expect any lump sums in the medium term future?Potential bonus of approx 2000 at christmas.


How important is retaining the family home to you?it is not critical, in fact we approached an estate agent about 4 months ago to ask about a sale. At present the market in the area is not good, we have outstanding work to do e.g. landscaping which will make a sale difficult and we may not get enough to pay off the mortgage.

Overall our plan would be to sell this home once it is viable to do so as while the mortgage is more than manageable if we don’t have other loans to also service the cost of commuting for work is too large.


Any other relevant information

Owe approx 5k to family which we are unable to pay at present.

Have sky TV, basic package

Have broadband but critical for work. Due to area we live in only have 1 provider.

No landline

1 car at present, 12 years old. Costs more in repairs and upkeep than it’s worth but not practical for us to upgrade.

Have health insurance which I am not prepared to cancel as we have pre existing conditions which will then not be covered as far as I am aware.

We are overdrawn by 1k more than our agreed overdraft on a monthly basis so we incur charges for DDs that are serviced.

We live approx 30 miles away from work though we both now work in the same area and so can travel together – our car costs are approx 750 a month incl tax, ins, fuel, repairs etc.

We are in the situation where any type of unexpected expense causes us major stress. E.g. car repairs

What is your preferred realistic outcome?We have approached the bank for a period of interest only or a short moratorium – 3 months in order to allow us to clear the bank loan we have as well as allow us to stop entering unauthorised overdraft on a regular basis. We could then reduce our monthly outgoings by 350 per month which we can use to service the CU loan and bring our repayments back up to the agreed amount.

They have declined both as we have ‘affordability’. We have appealed to the branch and have suggested that we will now end up defaulting for a few months while we try to get things under control.

I’m wondering what would happen should we not pay the mortgage for 4 months at which point we will be in a better overall position and can resume the payments and likely increased payments to begin clearing down the arrears immediately.

4 months not paying will allow us to clear the 3.9k bank loan, get CCs under control and prevent the unauthorised overdraft and extensive charges we incur in that situation.

On paper we don’t seem to be in trouble at all however we really struggle to pay everything and get to the end of the month without eating beans!

We have made cutbacks and changes e.g. the change of job and reduction to 1 car but we still don’t seem to be able to get out of our current situation.

You won't lose your house if you go into arrears.

As it's a variable rate mortgage, AIB won't lose out if you go into arrears.

It's surprising that they won't allow you switch to interest only.

If you unilaterally just pay interest only, your credit record will be affected for 5 years. It may already be affected, so that might not be an issue.

You won't be able to switch lenders, but that is not an issue.

So maybe switching to interest only is the right thing for you.

But interest only will save you only €300 a month.

So the argument might be that you may as well be killed for a sheep as for a lamb.

Clear the Credit Cards but make sure that you don't just max them out again.

Talk to MABS who might be able to help you identify areas to cut your expenditure and they may be able to help you deal with AIB.

If renting closer to where you work is cheaper than paying a mortgage, then that is definitely worth considering.

Is there any chance of downsizing to a house closer to where you work? AIB should let you move your mortgage to a house costing €150k or €200k.

The other thing you should consider is fixing your interest rate for one year. That would help a bit.

Brendan

Thanks Brendan,

We would sell and rent closer to work as it would reduce our outgoings quite significantly but the house (self build) is not finished and when we last spoke with an EA it didn't seem very feasible. That is our overall plan however down the line when we can, the commute costs are not sustainable forever and it's not likely that we will be able to work closer to home. It's a catch 22, we can't afford the work that's required to get it into saleable condition.

I will look at the Fixed rate option, it's not something I thought of.

We'll appeal the Interest Only decision also, it won't save us a huge amount but over a year the 300 a month would ease the pressure enough.

Be aware of the implications (e.g. tax, mortgage, insurance, tax relief etc.) of renting a property out versus using it as your PPR.

Thanks Clubman, though the plan would be to sell the PPR and rent instead closer to where we work.
Renting our current house would likely cover only about 60% of the mortgage repayment so it's not really an option for us.