Interest Only Mortgage dilemma - advice needed

D

Dan

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Advice needed please.

We have an interest only PPR mortgage of €520K with Pepper which was sold to them by the original lender in 2018. It is due to expire in 7 years with full capital repayment expected at that time.

The house is worth approx. €400K. No other assets.

It has been interest only since the start in 2006 on the basis that we had two businesses at that time with the potential to generate capital repayments over time. However, the last recession destroyed that potential.

I am self-employed with €50K gross income. My wife is now on disability and unable to work. We are both mid-50’s.

We have no other debts. We did but we successfully negotiated and settled them over a period of time.

The interest rate is now up to 5%, approx. €2,200 per month and it is causing us significant pain and reducing our capacity to live normal lives. Any further increases will put us in arrears.

What options might be available which would assist us in any way with the objective to remain in the home. What potential solutions would a PIA provide? How likely is a write down? Any practical advice or direction welcome.
 
Dan said:
The house is worth approx. €400K. No other assets.
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Dan said:
It has been interest only since the start in 2006 on the basis that we had two businesses at that time with the potential to generate capital repayments over time.
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Are you sure it is worth only that much? House values are pretty much back to 2006 levels or even above. If of course you had more than 100% loan to value at the time and/or arrears it's a different story. But your house might be worth more than you think.

Otherwise I'm sorry for your predicament and hope others can advise on PIA options.
 
NoRegretsCoyote said:
Are you sure it is worth only that much? House values are pretty much back to 2006 levels or even above. If of course you had more than 100% loan to value at the time and/or arrears it's a different story. But your house might be worth more than you think.

Otherwise I'm sorry for your predicament and hope others can advise on PIA options.
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It was a 100% mortgage and Arrears did accumulate around 2012/13. I’m basing my value estimate on the most recent sale of a neighbouring house but I will seek a proper valuation.
 
ClubMan said:
Including no pension?
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This part is important. Any pension is generally outside the terms of a PIA.

If you’ve been “stuffing” a pension there can be a clawback but with your circumstances I very much doubt it.

Dan said:
but I will seek a proper valuation.
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This would be helpful I think to see where you stand.

Otherwise do you have kids with the financial capacity to either buy the house or buy you a smaller property that you could live in? This could be a part of a solution.
 
Sounds like PIA may be the only option so.
Maybe contact MABS to get better idea of the answer to your final question?

Personal Insolvency Arrangements

People with secured debts who cannot pay their debts can apply for a Personal Insolvency Arrangement.
www.citizensinformation.ie www.citizensinformation.ie

Personal Insolvency Arrangements

Personal Insolvency Arrangements, PIA
www.gov.ie www.gov.ie

Personal Insolvency Arrangement - Back on Track

A PIA is a formal agreement with all your creditors that will write off some of your unsecured debt and restructure any remaining secured debt.
backontrack.ie backontrack.ie
 
This is a very complex issue and there is certainly no magic wand solution.

On the positive side...
You have had very cheap accommodation costs for the last 10 years - assuming you were on an ECB +1% tracker.
Although you are paying 5% now and although it may rise in the short term, over the medium term, it's likely that ECB rates will fall which will bring down your mortgage interest.
Irish mortgage holders are the best protected in the World. Even if you go into arrears again, you will hold onto your home for at least the next 7 years.
Although, I don't see a solution, with 7 years to go something might show up.


On the negative side...
By any measure, your mortgage is unsustainable in the long-term. There is no likelihood that you can repay the capital from your income.
As is often the case, the alternative of renting is also unsustainable and is likely to remain so.

I don't see how a PIA can help you
For a PIA to be successful, it has to put you back into solvency. You would have to show that you could, over time, clear the loan. This is not remotely possible.

Having said that, PIPs have proposed outrageously generous PIAs and the courts have approved them. So there is probably no harm in talking to a PIP. I probably wouldn't do so until ECB rates fall so some case for a sustainable mortgage could be made.

What should you do now?

Dan said:
The interest rate is now up to 5%, approx. €2,200 per month and it is causing us significant pain and reducing our capacity to live normal lives.
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The priority is for you to live normal lives. This does not mean having two cars, Sky Sports, going on holidays twice a year and buying lavish wedding presents for people. But it does mean not skipping meals and not paying the electricity so that you can pay your mortgage.

Be very careful about credit card debt. I see from earlier posts that you had big unsecured debts written off in the past and that your wife has borrowed money in recent years. Tear up your credit cards. Don't run up credit card debt to pay your mortgage in full in the expectation that the credit card debt will be written off again.

If you are contributing to a pension, stop it and prioritise the mortgage.

Decide what a comfortable level of repayments is. €2,000 a month seems appropriate. Notify Pepper that this is all you can afford, and that when ECB rates fall, you will clear the arrears. They won't like it, but there is not much that they can do about it. They will ask you to fill in an SFS and you should do so. They will ask for your wife's income as well and don't make the same song and dance you did the last time. Provide them with all the information if you want their cooperation.

What will happen in 7 years?

It's a long way away, and it's impossible to know. The most likely outcome is that you will lose ownership of your house. You may resist it for 2 or three years, but Pepper will get a repossession order, and it is only right that they should. It is not their job to house you.

There is a reasonable chance that the state will finance the purchase of your home through the Mortgage to Rent Scheme. So the likes of David Hall's organisation will buy your house and pay off Pepper. Pepper will write off any shortfall if there is one. Hall will rent the house to the local authority and, we the taxpayer, will pay the rent to David Hall. The local authority will rent the house to you at an affordable local authority rent.

So while you will lose ownership of your home, the chances are that you will continue as a renter.

With that in mind, you should probably contact David Hall's Irish Mortgage Holders Organisation now. They can advise you on all the options. And they will tell you whether Mortgage to Rent is viable. They also provide a PIP service, so they will see if a PIA can work in your situation.

Brendan
 
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