Case study Offered capitalisation of arrears on a cheap tracker in deep negative equity

[nic123]

Income details
€490 per week. Overtime one week per month so approx €650 one week a month..total approx monthly income is €2120. (overtime can vary from nothing to living in the place)
Income history: permanent secure job
Spouse Income history: currently €188 back to education per wk
Amount of child benefit received:€260
Amount of Mortgage Interest Supplement received:nil

Personal circumstances
2 adults, 2 children. One @ primary school & one @ full time creche.

1 car used by husband to get to college and pick up from afterschool.
Public transport for me, commuter town so bus eireann @ €40 per week.
Childcare costs. Afterschool @ the moment is €240 per month. Husband works assignments etc around school hours as much as possible.
Full time creche is €817 per month


Montly spend on special circumstances: e.g. exceptional healthcare costs
Everything we have goes on childcare/mortgage food etc


Home loan
Bank of Ireland
Amount outstanding. €257,976
Value of home: probably half? €130,000
Interest rate: currently tracker but was fixed rate until August 2013. Monthly payment went from €1350 per month to €850 per month now. That's how we've so much arrears.
Monthly repayment €844
Amount in arrears : €14,961

Summary of discussions and agreements with the bank
Marp since March 2011
Been on many interest only agreements @ 6 month durations but this is the first time we've been offered anything solid and long term.
They've now offered us term extension (3 years) with interim repayment and future capitalisation of arrears. I know nothing about finance etc but try. From what I can gather this is good 're our credit rating etc? Any advice welcome pls!

Credit Union
Amount of shares :2500
Amount of loan outstanding :11,000
Monthly repayment . €360
Term left. 5 years I think?

How important is retaining the family home to you?
Which of the following best describes your situation?

I really want to keep the family home even if it means having a large mortgage and negative equity for years to come. My son is growing up with his best friends next door and school around the corner. I will do anything not to upset his life.


Any other relevant information
As said my husband has been unemployed since 2009, he tried lookin for employment but no-one wants to employ a plasterer with no other experience so he went back to education. Started on various fas courses and is currently in final year of university where he will gain a*degree in IT.
What is your preferred realistic outcome? Husband gains employment after his degree and we start paying all bills and mortgage and give the kids a bit of a life ;-)

 

[goingforgold]

I believe you need to take advantage of your current situation and go down the personal insolvency route. This should have the effect of wiping out your arrears and wiping out some of the negative equity on your mortgage, thus making the capital repayments more sustainable. You will also get a deal on the unsecured personal loan.

Now is the time to do it while husband is unemployed...otherwise you and your young family will be struggling unnecessarily for the next 30+ years.

 

[Bronte]

total approx monthly income is €2120.Spouse : currently €188 back to education per wk
Amount of child benefit received:€260
Total: 2120 + 814 + 260 = 3194

Expensses
1 car ???
Bus @ €40 per week. 180 monthly
Afterschool @ the moment is €240 per month.
Full time creche is €817 per month
Home loan Monthly repayment €844
Credit Union Monthly repayment . €360
Total: 2441

Leaves 753 for food, utilities, car.

You apparently were on a tracker and moved to a very expensive fixed rate. Why?

What exactly is the bank now offering you, will it increase your monthly amount? Or will it wipe off the arrears by capitalising them? That would be great. But be clear as to what they mean by interim payments. Your very tight on money to be able to budget all you have. Must be very stressful. Excellent your hubby is retraining. That's the right thing to do. Any chance he could get an xmas job to bring in a few bob, but maybe that would mess up his 188€.

Can you ask the credit union to take your shares against your loan, and reduce the loan amount to give you more breathing space. How long before your youngest starts school, that creche is taking a lot of your earnings. Get to that stage and you will be in a much better situation. I think if you hang in there and take the banks current offer everythign will come right once your hubby gets a job and your freed of the creche costs.

 

[Brendan Burgess]

Reasonable Living Expenses|€
Total Before Deductions|2,115.88
| 2,115.88
Less Child Benefits|(260.00)
Total Set Costs | 1,855.88
Childcare|240.00
Total Costs | 2,095.88

|€
Net Monthly Income|2,120.00
Net Monthly Income - Partner|814.00
Total Net Monthly Income | €2,934.00
Reasonable Living Expenses|2,095.88
Available For Creditors | €838.12

So you have €838 available to pay your creditors.

You have a cheap tracker. Assume the rate is ECB + 1%
The interest cost at the moment is €270 per month (€258k @1.25%/12)
Which means that with a monthly repayment of €844, you will be knocking around €570 per month or €7,000 a year off your negative equity.

The interest on the Credit Union loan is probably around €80 per month.

I believe you should ... go down the personal insolvency route. This should have the effect of wiping out your arrears and wiping out some of the negative equity on your mortgage, thus making the capital repayments more sustainable.

Bank of Ireland is likely to veto a Personal Insolvency Arrangement as you have a cheap tracker and they have offered you a fair deal. I certainly would not be wasting money applying for this now. Wait a few months to see if Bank of Ireland is doing such deals. They certainly won't wipe out your negative equity and leave you on a cheap tracker. They might reduce the negative equity in exchange for putting you on a standard variable rate. So your repayments would still be at least €800 per month. You might be able to negotiate this without paying €7,000 to an Insolvency Practitioner.

So the options open to you are what BoI has offered you or bankruptcy.

If you go bankrupt and your home is repossessed, will you be able to rent a similar home in the area for less than €844 per month? I suspect not.

However, goingforgold does make a good point that if you are going to go for bankruptcy, now is the time to do it while your earnings are depressed.

Overall, I think you should accept the BoI deal.
Your arrears will be written off so the process of mending your credit record starts now.
Hopefully your husband gets a job with his new degree and you can get back on track.
You will be in negative equity for some time to come, but your repayments will be low because of your cheap tracker and extended period and you will be able to start clearing your expensive Credit Union loan more quickly.

Brendan

 

[nic123]

Hey folks,
Thanks for the replies, much appreciated and very helpful. I'm thinking we'll take the deal they're offerings
Thanks again
Nic