Is a mortgage holiday a good idea?

Hi,
Despite having a joint income of approx 120k we are really struggling with cash flow in the past year.
50% of our salary appears to be going on servicing debt. We increased the payment in our mortgage years ago to reduce the term. We currently pay 1400 per month and have 7 years left 109k.
We have a car loan of 19k (440 per month)and a personal loan of 5.5k (180 per month) all with AIB.
10k in credit card debt accumulated from lack of cash flow (600 per month)

We have a 2nd property on the market that was rented but on the market since Oct. We are currently paying half mortgage on this too( Co owned with another family member).
This is slow to sell despite being in a good area and well priced.

We are thinking of taking a mortgage holiday for 12 months interest only payments.

Is there any caveats on doing this or is there an another way to free up cash flow. Without getting further in debt.

All advice appreciated.

Thanks.

brokeagain said:

We increased the payment in our mortgage years ago to reduce the term. We currently pay 1400 per month and have 7 years left 109k.

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So, this is costing you about €4,000 in interest and €14,000 in capital repayments.

You can't afford to make those capital repayments. Ask the lender if you can revert to the original term without it being noted on your Credit Record.

For example, if the term reverted to 15 years, the repayment would fall to €800 a month.

Brendan

Are you entitled to a mortgage holiday in your contract? If so, that might be the best idea.

If you are funding another mortgage without any rental income, it's a temporary problem and taking a mortgage holiday on your home is perfectly reasonable.

Brendan

Yes we are entitled to a mortgage holiday. Thanks for your reply. If second property sold we would be in a better place. We would pay off short term loans and also have money that we are paying on second mortgage.
I guess I just want to know if there are any pitfalls in taking a mortgage holiday?

If you are entitled to it, no.

If it's deemed a restructuring, you would have an impaired credit record for 5 years after the break ended.

Brendan

It always amazes me that people tell their bank to increase their mortgage payments. They will have you jumping through multiple hoops to reduce them. In case anyone else reads this. Setup your mortgage account as a payee, then pay into it when you have money to spare. Some banks don't like this, but if for example your mortgage is with AIB you can bypass AIB's block by transferring from BOI into the AIB Mortgage Account

Towger said:

Setup your mortgage account as a payee, then pay into it when you have money to spare. Some banks don't like this, but if for example your mortgage is with AIB you can bypass AIB's block by transferring from BOI into the AIB Mortgage Account

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It used to be the case that some lenders would not set overpayments against the mortgage capital. I don't know if this is still an issue? But, to be safe, and ensure that any overpayments are used to offset capital and reduce interest charges, it's probably prudent to make your intentions clear to the lender even if you're not officially increasing the repayment and/or decreasing the term.

ClubMan said:

I don't know if this is still an issue? But, to be safe, and ensure that any overpayments are used to offset capital and reduce interest charges

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I doubt it was ever an issue. I suspect it was a misunderstanding by the payer.

Brendan

At one stage AIB would only recalculate the interest each quarter, so the extra payment would not be taken immediately into account.

Brendan Burgess said:

I doubt it was ever an issue. I suspect it was a misunderstanding by the payer.

Brendan

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Towger said:

At one stage AIB would only recalculate the interest each quarter, so the extra payment would not be taken immediately into account.

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This is an example of what I was referring to.

Towger said:

At one stage AIB would only recalculate the interest each quarter, so the extra payment would not be taken immediately into account.

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Is this still the same nowadays with AIB or has it changed?

Pinoy adventure said:

Is this still the same nowadays with AIB or has it changed?

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No, it's not like this. And hasn't been for years. Interest is calculated on daily outstanding balance.

The combined income is above average so you are in a good position financially. Cash flow planning does seem a temporary issue. Why overpay mortgage and then take loan for car/ credit card? Mortgage is the cheapest loan anyone can get.

The other option is switching mortgage lender and extending term to 65-66 years of age. Some banks may also allow you to extend term taking age of younger partner. That will reduce your monthly outgoing on mortgage.

The elephant in the room is the 10k credit card debt. While it is good to use it for one month interest free. If you only pay 600 per month, that interest charge is going to weigh you down and is drowning you.

Taking a rough calculation, of 50% as tax, you should still have around 5k take home every month. Your debt is 2.62k, you should pay off more of you credit card than just 600.