Interest-only investment mortgage due to expire next year

[gk_033]

Without going into the details of how we got into financial troubles during the last recession, our current situation is that



Our residential home is valued at 420K with 290k outstanding mortgage

Approx 220k equity



Our investment property is valued at 330k with 230 k mortgage balance; so approx 100k equity.



Our adult child needs to move..only started working full time from this month (.after finishing college).



We were hoping they could move into the investment property.... the issue is our mortgage term is coming to end next year, as it was interest only, the balance of 230k is still there. We dont have the cash to finish off the balance and as our kid only started the job now, they won't get the mortgage .to the value we need to pay off.

We have a savings of 50k approx, so roughly 180k is required.



What are our options??



Any help, advise where to get the loan with bad credit history? Thankfully we are doing OK now after several years of job losses, but bad debt means we won't get any loans from main stream banks at this stage. We are 55 years of age but working full time in good jobs ( approx 150k household income.

THe plan would be to work with our kid and they have agreed to help out with whatever loan we take - hoping to take 180k loan for between 5-10 years to pay off.

Also, due to reasons I cant disclose, our child needs to move out and the location of the investment property is where they would be looking to rent out anyway... paying around 2200 to rent!! ( we would need to help out for first couple of years) thats even more the reason, we want them to stay in that house.

 

[ClubMan]

Our residential home is valued at 420K with 290k outstanding mortgage

Approx 220k equity

€420K - €290K = €130K. But this may be moot anyway if any sort of PPR mortgage top-up/equity release isn't an option?

 

[ClubMan]

Also, due to reasons I cant disclose, our child needs to move out and the location of the investment property is where they would be looking to rent out anyway... paying around 2200 to rent!! ( we would need to help out for first couple of years) thats even more the reason, we want them to stay in that house.

If you're going to waive the rent in part or full then there may be Capital Acquisitions Tax/Gift Tax implications for your child over the Small Gift Exemption limit of €3K per parent per annum?

 

[ClubMan]

Would the Credit Union be an option or would they also decline any loan application given your credit history status?

If your financial troubles are recent then are you sure that taking on more debt (if that's even possible) is a good idea?

 

[gk_033]

1. No unfortunately we will get no loan in our name because if bad credit.

2. I was hoping to charge full rent ( or close to market value rent ) but that the house will be shared with friends so not all the burden on my child to pay off. This will also help with paying off the balance of the remaining mortgage.

Plan would be to do this for approx 2-3 years.... and in the meantime they can save up and get a proper mortgage and take the property in their name

3. Our financial troubles are from 1p0-12 years ago. Unfortunately one of us lost the job and it took nearly 4 years to get full time job. But we got way behind on bills/mortgage at that time..We are both in decent safe jobs and we haven't missed any bills/ mortgage last 7-8 years. But bas credit rating is still with us and I dont see that situation changing as we are close to retirement age.

 

[Brendan Burgess]

we haven't missed any bills/ mortgage last 7-8 years

Have you checked your credit record?

If you are up to date on all your payments for over 5 years, surely your credit record would be clean at this stage?

Or are you still in arrears? Or is your family home mortgage classified as restructured?

 

[Brendan Burgess]

the issue is our mortgage term is coming to end next year, as it was interest only, the balance of 230k is still there.

Who is the lender? I presume it's a vulture fund.

I also presume it's a cheap tracker formerly with Bank of Scotland Ireland.

If you don't pay it off on time, your credit record will be noted as being in arrears. But does that really matter to you?

I don't think that they will appoint a Receiver as you are paying the repayments in full.

So when the time comes, talk to them. They might be happy enough to just sit back and collect the interest. If you pay the €50k cash off the loan, they might be even happier. Why are you holding onto the €50k cash. Why not pay it off the mortgage now. The more equity, they have the less worried they will be.

You are on a good income. Can you start paying more than the interest only?

1) Pay off the €50k
2) Start paying down the capital
3) When they write to you in advance of the final date, tell them that you want to sell the property to your son but it will take 2 years.

They might well accept that.

 

[Brendan Burgess]

Another possibility, but a bit messy - could your son buy the house jointly with someone else?

What sort of job does your son have? What is his income and how is it expected to increase?

He should have a credit union account now so that when the time comes, he might get a mortgage to buy the property from you.

 

[Brendan Burgess]

About three months before the loan is due to be paid off, talk to the lender.

But talk to a mortgage broker as well. There are specialist lenders who lend for investment properties. They charge a high rate, but if it's only for a year or two, that might not matter.

In the meantime, get the loan down as much as possible.

 

[Bronte]

Without going into the details of how we got into financial troubles during the last recession, our current situation is that

It's not an ideal way to get proper financial advice if you don't give us a more rounded picture of the situation. See here on how to fill out the details

Key Post - Basic information required for the "Money Makeover" forum

It can be difficult, but please try to use a meaningful title in your thread For example "27 year old with mortgage arrears". You will get a much better and much more coherent answer if you give as much information as possible in your first post. For example, if you give your mortgage rate, it...

www.askaboutmoney.com

Plan would be to do this for approx 2-3 years.... and in the meantime they can save up and get a proper mortgage and take the property in their name

If advising your child I'd be loath to advise them to get mixed up into financial circumstances with parents who have been saving money 50K, while carrying an interest only loan, in good well paid jobs. Something doesn't add up.

But well done on two good jobs and catching up on your debts.

We need a lot more detail, how much is the investment property bringing in in rent right now. How much is the interest only. Is the 150K household income net or gross. Does it include the rental income .....

 

[MrEarl]

Hello,

Who is the current lender ?

This is important, as some of us may be aware of other borrowers, who have had to deal with similar situations, with the same lender.

I have no vested interest here, but I know a few people who have had to deal with these situations.

Two out of three parties that come to mind, successfully negotiated extensions / restructures, through Pepper, in the last 12-18 months, for example.

In both of the successful cases, the borrowers were able to pay a lump sum against the debt, and then also commit to a regular monthly repayment of capital and interest combined, for future periods of 3 years, and 5 years, respectively. Neither party could secure a commitment for a longer term, though both did try for 10 year terms, during their discussions.

It sounds like you could make a similar offer, including applying the €50k against the debt, immediately.

 

[gk_033]

Ok So to provide bit more context
We had 2 Investment properties, but during recession and losing job we had to give away one property and are now left with a balance of 150k loan on that. The bank ( kbc) has since left the market but the loan is with vulture fund. I refuse to engage with them as at the time we begged them to help . ..and I asked them to review out mortgage amount as it wasnt adding up...I asked for a little more time as my partner got the job again . but they point blank refused. On top of it, few years later they admitted that they overcharged us the interest. ( approx 70k!!) But it was not much use to us because they had sold the property at a lower price. They took that money off the balance but still left us with a arrears of 150k which I haven't paid a cent intto in the last 10years. If they want that money, they can take that after we are gone!! ( off our life insurance)
Some people may disagree with our approach but I still remember how they treated us... like beggars!
We had accumulated arrears on 2nd investment plus our own mortgage plus utilities ..everything. it took few years to get everything else back on track... except for the final 150k. But it has left us with poor credit record.


2. Even though we have good jobs, higher wages means higher taxes plus cost of living / college fees etc they all add up. We have enough but not necessarily to pay off 150k debt. We also have elderly parents to look after and that also adds to our day to day expenses. Parents live nearby but day to day looking after costs ( i hate even saying this out loud and feel very guilty saying it. They are the best people in the world ). They looked after us during our bad times and I feel I should be able to give them little comforts/treats.
Nothing extravagant..just bring them out for lunch/dinner couple of times a month ( they like good stuff!!l From their point of view, we are financially stable now

3. The issue I feel is only timing. If we had 2-3 more years left on the investment ...we would be okay because our child after finishing college should be able to secure a job..they only started job now. earning approx 35k but has a potential to increase to 50k plus in 2-3 years and more after 5 years.

I am emotionally attached to this property also - some very happy memories there before moving to our current house. ( I know i need to grow up and be practical )

Is there no help for people willing ( and able) to pay off on the loan.. especially if we can show that we will get approx 22k each year in rental income?
I had been paying a little extra for the last 2-3years on this interest only mortgage ( about 300euros extra) but with my child now working if they move with their friends..., between us we should be able to pay 2500 - 3000 a month as loan payment.
I am willing to pay 50k to bring the loan amount to approx 180k.

Our loans are with Pepper finance both investment and primary residence. You are correct previously Bank of Scotland.

Another thing I wanted to say... 15-20 years ago when we got into this mess we both were getting good money but clueless about investing etc. We got carried away... and did not put much thought into buying properties.. I am asking for advise but will be very careful about our child not ending in similar situation because of our stupidity... it took emotional toll beyond what you can imagine on health /mental wellbeing etc... it nearly broke us as a family but we've come a long way! Thank God...I am not willing to let my child to go through any of it so will only do what will help ..I won't put any unnecessary pressure on them. If selling the property is a better option...I will sell it.
Thanks

 

[ClubMan]

especially if we can show that we will get approx 22k each year in rental income?

I presume that €22K is an estimate of the gross rental income? You really need to focus on the net income (and yield). Since your household income is €150K then you're presumably paying 40% tax so the rental income is likely to be more like c. €11K (ignoring allowable expenses for simplicity and to be conservative)?

 

[gk_033]

True.....after tax it won't be full 22k

 

[Duddaa]

So if the rental income is closer to 11k than 22k, will the monthly repayments be more likely €1,250 to €1,500 a month rather than double that?
At 55 years old that gives you circa 12 years to retirement so €180k repaid in 12 years with only 1.5k repayment per month. That's just about possible on a low 3% rate but I don't see that working for someone with a poor credit rating.

 

[Brendan Burgess]

So this is your current situation:

Our residential home is valued at 420K with 290k outstanding mortgage

Approx 220k equity

Our investment property is valued at 330k with 230 k mortgage balance; so approx 100k equity.

We had 2 Investment properties, but during recession and losing job we had to give away one property and are now left with a balance of 150k loan on that.

So you have about €220k equity on two properties but you owe the lender €150k in unsecured debt?

It would have been helpful to tell us that up front.

 

[Brendan Burgess]

They took that money off the balance but still left us with a arrears of 150k which I haven't paid a cent intto in the last 10years. If they want that money, they can take that after we are gone!! ( off our life insurance)
Some people may disagree with our approach but I still remember how they treated us... like beggars!

You do owe €150k. Before that you owed €220k. Presumably you have been through the tracker programme and got a lot of compensation including some for losing the property.

You made big mistakes. You realise that after the event.

You need to sit down with a Personal Insolvency Practitioner and get comprehensive advice on your situation. The lender could get a judgement mortgage on the €150k against one of your other properties. They probably haven't bothered up until now if you hadn't much equity. Or your loan agreement could mean that the €150k shortfall would have to be paid out of the proceeds of sale of one of the other properties.

In any event, you need full professional advice with all the documents in front of the adviser.

 

[Bronte]

Ok So to provide bit more context

You've been very brave to come back and give us the full details. It's really important that we understand your actual finances.

As Burgess said I'd be worried about Pepper coming back for the 150K. Banks have time. During the UK bust, in the nineties, a lot of people handed back the keys, but when those people got back on their feet the banks pounced. So you really do need to think about this.

Home 420K with 290k outstanding mortgage Pepper
Approx 220k equity

Our investment property is valued at 330k with 230 k mortgage balance; so approx 100k equity. interest only 2027 Pepper

We have a savings of 50k approx, so roughly 180k is required.

Equity Family home 130K

balance of 150k loan

Can you confirm this is a third amount owing? With Pepper?

RENTAL PROPERTY

we will get approx 22k each year in rental income

This is incorrect. As a top tax payer you'll lose half that. So as Clubman said you'd get 11K.
Gross yield is 6%, net yield is 3%. ummm. Plus the risk of losing the equity when the bank potentially comes for it.

The worst reason to hold onto the rental is sentimental reasons !

CHILD - is it an only child?

330K house value
180K mortgage (if you gift 50K)

How many bedrooms, is it a good location? Would they get 14K under rent a room, plus then have 'free accommodation' themselves? How much would a bank lend them on a salary of 35K?

 

[ClubMan]

During the UK bust, in the nineties, a lot of people handed back the keys, but when those people got back on their feet the banks pounced. So you really do need to think about this.

"Handing back the keys" doesn't make any outstanding debts disappear. If/when the lender moves to collect they're not really "pouncing" in my opinion. The borrower will be well aware and informed that they still have an outstanding debt by the time that this happens.

 

[TLO]

The €150k could easily be statute barred. The limit is 12 years in the case of property related debt. However, the debt can sit on Central Credit Register for ever, and will prevent most forms of credit from being extended.

Insolvency options aren't an option, because the OP is solvent.

Putting emotion to one side, the correct thing to do is to sell the investment property, take the €100k, add it to the €50k savings, and negotiate a settlement on the €150k outstanding.

With €150k household income, a €290k PPR mortgage, and no other debts, the family finances will rapidly improve.