Brendan Burgess
Founder
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Restructuring a mortgage with a balance of €200,000 with a 5% interest rate and 20 years left to run
|Monthly repayment|Total interest over life of mortgage
No restructuring|€1,319|€117,000
Extend to 25 years|€1,169|€151,000
Interest only for one year & repay over following 25 years|First year: €833; Following 25 years: €1,169|€161,000
Full moratorium for one year & repay over following 25 years|First year: zero; Following 25 years: €1,227|€168,000
You have struggled on with salary cuts, tax hikes and increased day to day living expenses but you have run out of road. You have kept up your mortgage repayments so far, but something has to give. You are not alone. The Central Bank reports that almost 70,000 people facing this dilemma have got the agreement of their bank to restructure their mortgages to reduce the monthly repayment.
Let’s say you have €200,000 left on your mortgage with 20 years to go and the interest rate is 5%. The repayment is €1,319 per month at the moment.
The first thing that the bank will offer you is to extend the term of your mortgage to say 25 years. This will reduce your repayment to €1,169 per month a saving of €150 per month. But of course you will have 5 extra years of payment. And the total interest you repay to your bank will increase by €34,000. That sounds a lot, but it’s not a figure you should focus on too much. Sure the bank will make more profit out of you, but by the same token you will have use of their money for an extra 5 years. And when your income improves in a few years, you can always increase the repayments again, paying off the loan earlier and reducing the total interest you pay the bank.
If €150 a month is not enough of a saving for you, you can ask to switch to interest-only for a period. This will reduce the repayment to €833, a saving of almost €500 per month. But if you go interest only, you are not reducing the outstanding mortgage, so the long term cost will be much higher. Let’s say that they bank offers you one year at interest-only followed by increased repayments for 25 years. Your repayment will increase to €1169 per month after a year and you will pay a total of €161,000 in interest.
And what if you have lost your job and can make no repayments at all for a year? The lender may agree to a one year full payment moratorium where you pay no interest or capital. At the end of that year, the amount you owe will go up to €210,000. The repayment over the next 25 years will be €1,227 or a total of €168,000 in interest.
The most important thing is that you do talk to your lender before you go into arrears. 70,000 people have done so and have reached agreement on a reduced mortgage payment. This takes the pressure off and it also makes sure that you don’t damage your credit record. A restructured mortgage is noted on your ICB record but it does not affect the overall rating. A month or two of arrears, and you will be classified as sub-prime for many years to come.
But it’s better late than never. If you have fallen into arrears, call your lender and they will work with you on a plan to sort it out. They will reschedule your mortgage. Initially they will “park” the arrears. They won’t be written off but they won’t aggressively pursue them. After a year or so, if you have stuck to the revised agreement, they will “capitalise” the arrears. If your lender offers to do this, they are not giving you something for nothing. Say you owe €190,000 + €20,000 in arrears, they will just add the two together and say you owe them €210,000 While the amount due remains the same, they are acknowledging that you don’t have to pay the arrears in one lump sum. They will collect them over the remaining term of the mortgage as if they had given you a top-up. But most importantly of all, if you don’t have any arrears, they can’t initiate legal action against you.
No restructuring|€1,319|€117,000
Extend to 25 years|€1,169|€151,000
Interest only for one year & repay over following 25 years|First year: €833; Following 25 years: €1,169|€161,000
Full moratorium for one year & repay over following 25 years|First year: zero; Following 25 years: €1,227|€168,000
You have struggled on with salary cuts, tax hikes and increased day to day living expenses but you have run out of road. You have kept up your mortgage repayments so far, but something has to give. You are not alone. The Central Bank reports that almost 70,000 people facing this dilemma have got the agreement of their bank to restructure their mortgages to reduce the monthly repayment.
Let’s say you have €200,000 left on your mortgage with 20 years to go and the interest rate is 5%. The repayment is €1,319 per month at the moment.
The first thing that the bank will offer you is to extend the term of your mortgage to say 25 years. This will reduce your repayment to €1,169 per month a saving of €150 per month. But of course you will have 5 extra years of payment. And the total interest you repay to your bank will increase by €34,000. That sounds a lot, but it’s not a figure you should focus on too much. Sure the bank will make more profit out of you, but by the same token you will have use of their money for an extra 5 years. And when your income improves in a few years, you can always increase the repayments again, paying off the loan earlier and reducing the total interest you pay the bank.
If €150 a month is not enough of a saving for you, you can ask to switch to interest-only for a period. This will reduce the repayment to €833, a saving of almost €500 per month. But if you go interest only, you are not reducing the outstanding mortgage, so the long term cost will be much higher. Let’s say that they bank offers you one year at interest-only followed by increased repayments for 25 years. Your repayment will increase to €1169 per month after a year and you will pay a total of €161,000 in interest.
And what if you have lost your job and can make no repayments at all for a year? The lender may agree to a one year full payment moratorium where you pay no interest or capital. At the end of that year, the amount you owe will go up to €210,000. The repayment over the next 25 years will be €1,227 or a total of €168,000 in interest.
The most important thing is that you do talk to your lender before you go into arrears. 70,000 people have done so and have reached agreement on a reduced mortgage payment. This takes the pressure off and it also makes sure that you don’t damage your credit record. A restructured mortgage is noted on your ICB record but it does not affect the overall rating. A month or two of arrears, and you will be classified as sub-prime for many years to come.
But it’s better late than never. If you have fallen into arrears, call your lender and they will work with you on a plan to sort it out. They will reschedule your mortgage. Initially they will “park” the arrears. They won’t be written off but they won’t aggressively pursue them. After a year or so, if you have stuck to the revised agreement, they will “capitalise” the arrears. If your lender offers to do this, they are not giving you something for nothing. Say you owe €190,000 + €20,000 in arrears, they will just add the two together and say you owe them €210,000 While the amount due remains the same, they are acknowledging that you don’t have to pay the arrears in one lump sum. They will collect them over the remaining term of the mortgage as if they had given you a top-up. But most importantly of all, if you don’t have any arrears, they can’t initiate legal action against you.