What happens the Deferred Interest in the DIS?

[orka]

Under the Deferred Interest Scheme, the lender will accept a payment of 66% of the interest for up to 5 years
The Expert Group on Mortgage Arrears proposed a Deferred Interest Scheme which has been implemented by most lenders. So in the example above, a borrower on a standard variable rate who can pay €825 a month, will be given up to 5 years to get back on track.

Does the 34% interest that is not paid get rolled up into the capital outstanding or does the lender effectively charge an interest rate that is 2/3rds the normal rate?

EG if the loan outstanding is 100K and the interest rate is 4.5%, interest only at 4.5% is 4,500 per annum and 66% of this is 3,000. If the borrower is paying interest only at the 66% level, is the loan outstanding after 1 year still 100,000 or has it increased to 101,500?

 

[Brendan Burgess]

It has increased to €101,500.

The deferred interest of €1,500 is put into a separate account and no interest is charged on it. However, this is not significant as the interest saved is very, very small. Nothing in the first year, €67.50 in the second year etc.

 

[orka]

The question wasn't whether compound interest was charged on the unpaid interest but whether the unpaid interest rolled up at all - so that eg the person owed 107,500 after 5 years of only paying 66% of the interest OR if their capital outstanding was left at 100,000.

I suppose the clue is in the name 'deferred' but I thought that given that this is the 'breathing space to get back on track' option, I thought there was a possibility that the capital would NOT increase - ie "pay us 66% of the interest and that's all we want from you, you'll still owe us in 5 years time what you owe us today".

Anyway, thanks for clarifying.