Coming out of interest only not able to afford full mortgage

Hi there,

I have used the money makeover template to assist in explaining my query.

Age: 37
Spouse’s/Partner's age: 35

Annual gross income from employment or profession:

Employment gross €18,370.44. Net €16,655.88
Plus job seekers allowance €1,197.00

Annual gross income of spouse:
Carers allowance €11,382.84
Children's allowance € 1,560.00
Domicillary care €3,714.00

Monthly take-home pay €2875.81

Type of employment: e.g. Civil Servant, self-employed
Community and voluntary sector

In general are you:
(a) spending more than you earn, or
(b) saving?

We are not able to save and are not going to be able to afford mortgage when it comes off interest only in Dec '14.

Rough estimate of value of home: €330k
Amount outstanding on your mortgage: €251,051.57
What interest rate are you paying? Fixed @ 3.86% on €204,152.37 until December 2014. Variable rate of 4.49% on €46899.20

Other borrowings – car loans/personal loans etc. no loans

Do you pay off your full credit card balance each month? No credit card debt
If not, what is the balance on your credit card?

Savings and investments: 4k

Do you have a pension scheme? Small work pension scheme

Do you own any investment or other property? No

Ages of children: 5. We have a very medically fragile child and so there is no opportunity to increase employment.

Before our son was born, we overpaid our mortgage and have no loans. We split the interest rate on the mortgage with the idea of over paying on the variable rate. With the birth of our son this was no longer a possibility.

We entered into the MARP process and have been engaging with the bank for 2 years. We have been on interest only for 2 years and have not missed any payments. We are coming out of the 3.86% fixed rate this December (the mortgage will revert to the standard variable rate of 4.49%) and the bank has indicated that they will not allow us interest only again.

We are worried as we are pinned to the collar already, we do not go out much at all, maybe four times a year. We will not be able to afford our mortgage. We do have health insurance due to the fact that our boy often needs consultants and anaesthetists and unfortunately in this country the best way to access them is through health insurance. It is €163.21 a month (my spouse and I are on minimum package to insure our son is on his)
Our house is an adapted house for our son and it is important for us to try to keep it.

Life insurance: €43.73 per month

What specific question do you have or what issues are of concern to you?
We are so broke with expenditure rising without having any chance of our income rising in the future. Our mortgage is coming out of fixed rate interest only and we are not too sure what to do?

Hi Galway

This is a tough one.

You need to keep your home. It will not be possible for you to rent a similar home for less than the interest on your mortgage.

Your bank will classify your mortgage as unsustainable. Check out this Key Post

What to do if you get a letter saying your mortgage is unsustainable

Given your circumstances, if you continue to pay the interest on your mortgage, I think it's unlikely that the lender will take legal action to repossess your house. Unfortunately, the threat will continue to hang over you, but there isn't very much you can do about it.

I am not familiar with the various allowances you are getting, but does any of them help with housing costs? Are you a member of some support group for your child's illness? They might have ideas.

Check out the Buy to Let Scheme
I doubt if it would work for you as you are in positive equity and very few have succeeded. But if the local authority was prepared to buy your house, then it could solve a lot of problems for you.

Before our son was born, we overpaid our mortgage

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Did you overpay it by much? I presume that the overpayments have been wiped out by the arrears from being on interest only? If not, you could argue that you owe them less now, than you otherwise would have owed them, had you not overpaid your mortgage.

Galway! I can offer you advice from the perspective of a banker. BB is correct. Under the CCMA code a bank must classify your mortgage as unsustainable. They cannot offer you a long term interest only deal even if they wanted to. Given your financial circumstances they must state that you need to sell your pdh and move to an affordable property. However as BB points out it would be difficult for the bank to evict you in the circumstances as described by you if you keep meeting the interest payments. You will continue getting nasty letters and calls but advise the bank fully of your circumstances and that you will cooperate in paying interest. There is some risk in this strategy but your as alternative options are very limited.

Galway75 said:

Employment gross €18,370.44. Net €16,655.88
Plus job seekers allowance €1,197.00
Total: 17852 / 12 = 1487

Annual gross income of spouse:
Carers allowance €11,382.84
Children's allowance € 1,560.00
Domicillary care €3,714.00

Total: 16656 / 12 = 1388

Monthly take-home pay €2875.81 CORRECT

Rough estimate of value of home: €330k
Amount outstanding on your mortgage: €251,051.57
What interest rate are you paying? Fixed @ 3.86% on €204,152.37 until December 2014. Variable rate of 4.49% on €46899.20

204K @ 3.86 = 7880 /12 = 656 plus the variable rate amount.

Savings and investments: 4k



(the mortgage will revert to the standard variable rate of 4.49%) and the bank has indicated that they will not allow us interest only again.

health insurance. It is €163.21 a month

Life insurance: €43.73 per month

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How much is the variable part costing you.

How much will total repayment be if you have to pay variable on the full amount.

How many years are remaining on the mortgage. Need to see if extending the term is an options so as to bring down the monthly repayment.

44brendan said:

. Under the CCMA code a bank must classify your mortgage as unsustainable. They cannot offer you a long term interest only deal even if they wanted to.

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Can they not offer a reduced interest rate, I have a sibling offered a deal, different bank, on a reduced rate of interest?

Thank you all for your replies.

Brendan, we agree about the interest only. We can barely afford it once the fixed rate mortgage ends but we'll manage.

We can't find any allowances that deal with mortgage relief, the mortgage interest relief scheme would have been ideal for us but new applications for this ceased at the end of 2013. We have thought about approaching the community welfare officer to see if they'll take an application but we're not all that hopeful about this idea.

We overpaid the mortgage by a significant amount, it came off the principle and means that today we owe less than we would have. It does not, however, have any other value (apart from the fact we can argue that it is purely on medical grounds that we are in this position).

44Brendan, thanks for your perspective. Regarding the logistics of just paying the interest, how do we actually do that? As in the bank will call for the full mortgage by direct debit and do we have no money in the account and then make transfers to the mortgage accounts of the interest amount?

Bronte, the variable part of the mortgage (bal €46,899.20) is currently costing €175 interest only. The interest rate is 4.49%. There is 28 years left on the mortgage and due to our ages, I don't know if they'll extend the term past us turning 65. I do not know exactly how much this portion will cost from December but going on Karl's mortgage calculator the total cost (interest + capital) on our €251k with 28yrs left at 4.49% interest is monthly repayments of €1,313. Out of this approx €940 is interest and €75 can be deducted for trs.

Regarding requesting a reduced interest rate, we wrote to the bank today fully explaining our situation and have requested a reduced interest rate on compassionate medical grounds.

Thanks again to all of you, your replies are very much appreciated.

Galway75 said:

We overpaid the mortgage by a significant amount, it came off the principle and means that today we owe less than we would have.

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Well you can certainly argue that you are ahead and therefore entitled to take a repayment break.

You absolutely must make this argument in writing to them. Again, it will all count if, in the unlikely event, that you do face a court hearing.

Regarding the logistics of just paying the interest, how do we actually do that? As in the bank will call for the full mortgage by direct debit and do we have no money in the account and then make transfers to the mortgage accounts of the interest amount?

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You will need to open a new current account in a separate bank long before November. Maybe move to KBC or ptsb who are looking for the business. Then you just make sure that there is no money in your account or cancel the direct debit.

Your position is to knife edge to rely on the lender not taking out money if it's there.

Galway75 said:

Bronte, the variable part of the mortgage (bal €46,899.20) is currently costing €175 interest only. The interest rate is 4.49%.

28 years left on the mortgage

the total cost (interest + capital) on our €251k with 28yrs left at 4.49% interest is monthly repayments of €1,313. Out of this approx €940 is interest and €75 can be deducted for trs.

.

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Currently paying 175 + 656 = 831
Variable: 1,313 - 75 = 1238
Difference = 407

Income: 2875

Mortgage: 1238
Health: 163
Life: 44
Balance: 1430, with the extra 407 it's actually 1837 monthly

Let's see if they will reduce your mortgage interest rate, that would be a help. Next step then is to see if they will allow you a repayment break. Then I guess you'll have to go to the interest only option.

It's absolutely appalling that you've no state organisation to help you understand how to deal with the bank, how to negotiate with them, that the bank doesn't dedicate one person to deal one on one.

Have you tried Mabs for budgeting advice?

I hope you sent your letter to the bank by recorded delivery or registered post.