Return to Interest Only

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greeneman

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I am 9 years into a 20 year commercial mortgage. Big struggle. Original loan was 350 k. Now 266 K. I have 130k of my own money invested.
What if I got to interest only @ 4% for next ten years, and used pension lump sum to pay back the capital in 10 years time ?

I know I pay more interest, but inflation might take care of the capital sum.
I have come this far that I don't want to loose it now. But I am about to loose my job and I don't think I can make the repayments. Rent will only cover the interest.
Does anyone know how to play this one to the bank.
 
There are a couple of issues at play here which the bank will need to access. Let me advise how the bank will approach this:
1. You have just lost your job, so bank assessment will reflect a minimal ability at the moment to meet repayments. In that scenario you may be able to negotiate a payment reduction for a period . This will allow you time to get replacement employment.
2. Pension proposal will not be accepted. The bank cannot take a charge over your pension and would be totally reliant on both you continuing to meet the contributions and to pay your cash-free lump sum to the loan account at retirement. As you are now unemployed you do not have the capacity to contribute to a pension. If you regain employment the bank will expect you to meet loan repayments rather than paying towards a pension.
3. Most likely outcome is that the bank will ask you to immediately place the unit on the market for sale. This would be the position with my bank. I'm assuming that there is positive equity in the property. If you don't comply there is a high risk that they will appoint a receiver to sell the property.
You can try the pension proposal, but I would be amazed if it was accepted.
 
The key issue here is what is best for you. Forget the lender for the moment.

Is this a good investment? If you have a loan of €266k on a property worth €350k, and the rent is just covering the interest, then sell the property. Forget what it cost you. Forget what you put into it. Just look at today's figures.

If it's a good investment for you, but the bank won't let you keep it, then you have a difficult problem in keeping it. Your priority is to avoid having a receiver appointed as that will cost you money.

What interest rate are you paying? If the rate is profitable for the bank, the right thing for them to do is to switch you to interest only. But lenders can't see this. But you could try to persuade them.

What is the story with your home and home mortgage? It's probably best to put up all the information in this format:

Information required for mortgage arrears and negative equity questions
 
Sorry not back sooner. Thank you both for your advice.
Property is in a remote rural location. Absolutely no way it can be sold. I know you might find it hard to believe but no way does anyone have over 50K for it. And even those that can afford it wont deal with a bank or a receiver. If Bank could get a receiver, he would put it in Allsops and get 20K to 50K. The bank know this. Am paying 3.5% interest. That's 9310 in interest this year. I can pay 15000 if I give them all the rent. I think that's what I will do. I think they will be happy. In other words, I will organise my own restructuring. Am I naïve ?

If a receiver got 50K, they have to pursue me for 230K approx. And I will not have it. Except in my pension fund.
I know my credit rating will be affected, but they don't lend to me anyway even though I never missed a payment with them or any one, ever.
 
Ok so position is clearer now. Firstly, in coming to any decision you should forget the "I don't want to lose it mentality" on this property. If it is currently valued at 50k that is what it is worth. If/when you lose your job you will have no income, so your priority is meeting your living expenses and finding a new income source.
Annual rent of 15k on the property is good! If this is market rent the property should be worth well in excess of 50k!! If it is not a market rent why is the tenant not looking for a rent reduction? Bank will demand the rent at a minimum. They are also likely to insist on a voluntary sale if you can offer them nothing else. If your status in unemployed and you have no other unencumbered assets you may be in a position to do a settlement deal with the bank. I.e. Offer full co-operation with sale of the unit if they agree to accept net proceeds in full settlement of amount owing. Excellent deal for you if they do.
 
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