at what stage should you approach the bank?

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justo

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My mortgage and life assurance repayments account for 63% of myself and my spouses joint monthly net income. We also have childcare costs and a car loan of a few hundred a month (10 months remaining).

At what stage should we talk to the bank with a view to some sort of restructuring?

Our quality of life is crap - we struggle to even buy new clothes for the kids.

I am very hesitant to go interest only as it just puts off payments until the future.

I have heard that you can re-negotiate the interest rate but do you think the bank will entertain us or do I have to default before they care?

thanks.
 
Hi Justo

I am very hesitant to go interest only as it just puts off payments until the future.
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By paying off capital, you are effectively putting your money into a savings account. You should not be saving while your quality of life is so bad. The current cost of your mortgage is the interest you are paying. If you are able to service that, you are doing ok. Ideally, you should pay off your mortgage over 20 years or so, but we are not in an ideal situation.

Approach your bank now and ask to move to interest only. They should agree although probably only for about 6 months or so. If they do it for 10 months and you can repay your car loan, you will be in a much better position.

By the way, you may also be able to extend your car loan.

Don't wait until you fall into arrears to start talking. It may take them some time to process your application.

Brendan
 
All Banks now have a process for dealing with customers who are encountering difficulties in paying their mortgage. It is important to approach the Bank in an open manner in terms of your financial circumstances. Ideally bring along a statement of assets and liabilities and an outline of income and expenditure. payslips are also generally requested.
In general where residual amount after loan repayment is below what the Bank considers to be a required level to meet living expenses some repayment mitigation can be agreed. I agree with you that a full interest only request is only delaying the inevitable. Don't hold out any hopes of debt forgiveness. It may happen but only for those in very deep financial difficulties. It is also unlikely that any re-negotiation of interest rate will be agreed. I have never seen this happen. Look for a reduced repayment amount that will leave you with sufficient funds to cover your normal outlay. Position may improve when car loan is redeemed. Make sure both your spouse and yourself discuss the options on repayment amount before putting a proposal to the Bank. It is important that once you agree a deal that you stick with it.
 
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I would have some reservations in supporting Brendan's recommendation on paying interest only.
- This is a loan that will need to be repaid. Paying interest only will not reduce the outstanding debt.
- If you can afford to make some element of regular capital reduction you should do this. There is a cost to not doing so as outlined in the Irish Independent today and based on Brendan's own figures.
- It will be extremely difficult to mave from interest only to full capital repayments in the future. Remember Interest only is a temporary solution. It postpones a problem rather than resolves it.
 
Thanks Brendan and 44 Brendan.

I take your advice. Yes - I am totally opposed to interest only - the banks actually make money out if this model - my situation is not going to change hugely in the next 6 to 9 months but if I were to be coming off an interest only then, I would still have the same capital to repay, but less time to do so.

I'm really trying to gauge if living of 37% of our net wages is a level of hardship the back would be sympathetic to?
 
Hi Justo,

37% of your net wages is a meaningless figure.

If your net wages are 10,000 per month then you should be well able to manage with 37% of this for food, clothes, etc.

If your wages are more like 2,000 pm then it's a whole different story.

Do up a list of all expenditure on an average month - food, clothes, electricity, petrol, everything. The bank will not expect or require full mortgage payments at the expense of you being able to feed your family. I have found them to be very sympathetic to a family which is struggling.

Of course going interest only for a few months or so will mean paying more interest in the long run but once your car loan is paid off you can revert to capital plus interest and won't be paying much more each month.

My advice would be to get all your figures together and approach them immediately - they like people to be proactive and sort out problems before they become arrears.

Sybil
 
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