Case study Unsustainable mortgage with NIB/Danske, advice pls

C

ced1

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Personal and income details

Net (i.e. after tax) Income self: EUR2300 per month
nature of income: temporary job in construction since Oct2012
Income history: e.g. "50yr old Construction worker - I was unemployed for 3 years prior to Oct12. Am Separated. We were debt-free but unfortunately I had to take out mortgage in 2007 to pay settlement to ex. "
number of children: 4, youngest 2 in education, the two oldest have fled the nest
Amount of Mortgage Interest Supplement received : n/a
Home loan
Lender: National Irish Bank / Danske
Amount outstanding: 245,000
Value of home: 160,000
Interest rate: 1.15% tracker , ECB +0.65%
Monthly repayment : EUR1215
Amount in arrears

Summary of discussions and agreements with the bank : Was paying the mortgage fine when I was in work, then bank agreed to interest only for period when unemployed (6 monthly reviews), got some Mortgage Interest Supplement , supplemented with some savings. Have been paying full mortgage for last 5 months mostly from savings but now not sustainable as savings now gone, family loans no longer an option

Other loans or creditors : loan from brother 11,000, no interest, repay when I can

Other savings and investments : savings all gone. have small separate parcel of land value approx 45,000 worth less than I paid for it.


How important is retaining the family home to you?

I want to keep the family home as I built it on my own site got from parents

Any other relevant information

What is your preferred realistic outcome?

I will never be in a position to repay the full home loan. I will sell the land which still leaves NE of 40K and loan of 11K. What are my options?
This is going on over 3 years now and stressing me out. Cant afford this mortgage and still pay bills.
I want bank to work out a sustainable mortgage for 15 years and write off remainder of debt. What should I ask for when I meet with bank next week? Advice please!
 
Hi ced

The repayments on €245,000 @1.15% over 20 years would be €1,100 per month.

The repayments on €200,000 (i.e. after paying the proceeds of selling the land) @ 1.15% over 20 years would be €930 per month

Of this, only €200 is interest, so you have a very cheap mortgage.

You can apply for a Personal Insolvency Arrangement, but I think that NIB would probably veto it. They might go for the following voluntary arrangement

Pay €45,000 off the capital now.
Write down a further €60,000 off the capital reducing the mortgage to €160,000
Increase the margin to ECB + 4%
The repayments on €140,000 @ 4.5% over 20 years would be €890 per month.

NIB are getting roughly the same repayments.
They are getting a cash payment up front.
You have got rid of negative equity.
You have roughly manageable repayments.

You would be paying down the capital by around €4,000 a year. If at some stage in the future, your housing needs changed, you could sell the house and have a bit of money over having paid off the mortgage.
 
You will need to rationally asess your financial position. i.e. look on it as follows:
- You currently have an income of 2.3Kpm. This is not sustainable & your full time job prospects most be regarded as bleak at present.
- At best you expect to have some intermittent ability to service loan repayments. However, if you do this you have no funds put by for potential periods of unemployment.
-I acknowledge why you would want to hold on to the property. This is a high risk strategy. realistically you are unlikely to be in a position to service the debt and Danske have a strategy of exiting non-core business by the end of 2014. With the limitations of MARP they will be putting the squeeze on all non performing loans.
- You should consider approaching them with an offer to sell the property and w/o the residual balance. This will give you some scope to get out of this with potential for a fresh statrt and no debt overhang. It's only a house and in my opinion no house is worth the hassle you are going through. Final decision is obviously yours but get some advice from friends/family. Plenty of rented properties available without the burden of what you are currently carrying!
 
I would agree getting rid of home. Would be lively to keep it if you could - but its making your life difficult. It's quite a price you're paying for sentimental value. All it requires is a change if mindset and in my view once it's done you won't look back.
Everyone's different of course.
 
Hi 44B

That is an interesting assessment.

If Danske allowed him to sell now and write off the shortfall, then maybe he should do this as he would keep the €45,000 piece of land.

But ced is well able to service the interest on this loan. Paying 1.15% of €245,000 is going to be a lot cheaper than any other housing option.

Danske will require capital repayments, but, would they veto a fair PIA along the lines I suggest?

At the very least, ced should sell the investment property and use it to pay the repayments for the next 5 years. His income may have improved. The property value may have risen. Danske may have a change of heart.
 
Here's a different angle. Sell the plot of land and pay back the family member, people should not borrow from family to pay mortgages as it only makes things even messier. Then give the bank the remainder and get them to allow you to sell the house and hopefully write off the shortfall.

I don't have attachments to homes so I may lack empathy with your reasons for keeping it. If you really want to keep it can you not get extra income by renting out rooms?

Are the 2 children living with you or your ex? I'm assuming based on the nature of your work that you are the male so at a guess you live alone? Then your housing requirments would require a lot less than a mortgage repayment of circa 1K. If you do live alone, could you not move in with your parents? Another option maybe.
 
Then your housing requirments would require a lot less than a mortgage repayment of circa 1K.
Click to expand...

I think that this is the wrong way of looking at it.

The cost of his accommodation is 245k @1.15% or around €235 per month.

The rest of the repayment is capital, which is gradually eliminating the negative equity. When the negative equity is eliminated, he will be building up positive equity.

The best course of action is to keep this cheap mortgage as long as possible. If he is forced to sell in 5 years, he will have had cheap accommodation for 5 years and will have had a chance to pay off the negative equity. House prices may have increased in the meantime. They may fall as well, but there is little practical difference between a shortfall of €50k and a shortfall of €100k. And his income may improve which could make the mortgage sustainable.

Brendan
 
Thanks everyone for the advice. Brendan when you say "sell the investment property" I assume you are talking about the land. Bronte one of the kids is with me most of the time, the other with his mother mostly and my parents are both dead, not sure if that would have worked anyway!
I am always busy and so as long as I have my health I hope to be getting some sort of income.
I am going to put the land up for sale and now my brother has suggested he will loan me the money to cover the mortgage for the few months until the cash from the land comes through. I think I will go with this option - this buys me a few more months at least.
 
How much rent would you pay if you sold the house? How much of a mortgage can you actually afford on your current salary.

Maybe, and it's a faint maybe, but we finally have a new pilot scheme that 'mentions' debt write downs, then try you bank for a writedown to a mortgage that is sustainable. It's worth asking for anyway.
 
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