Worried about what rate vulture fund will charge me when fixed rate is up.

[REDRUNNER]

Post edit to delete unnecessary history and focus on today's problem.

Hi Guys,


my problems are a few years down the track, but I'm very concerned about them and would appreciate any advice about what preparation or action I should take in the future.

Bit of a long history to the mortgage, I took out my mortgage with PTSB with an ex fiancee in 2006 to build our house, in 2008 shortly before we were due to marry, I found out she was seeing another guy and we split with me having to remortgage with KBC bank to buy her out and keep the house.
I borrowed €245,000 at the time.

In 2011 I married and shortly after we found ourselves going down an expensive IVF route, 9 cycles costing €74,000, don't ask me how we managed to pay for it, savings, family donations, sold cars, etc. We finally got lucky and our first baby was due in march 2016, it was a very touch and go pregnancy from the start but had a lot of stress, and complications in the final months.

I contacted KBC Bank and explained my situation and that we were traveling to hospital now on a daily basis, and that i needed to take unpaid leave from my job for about 2 months but I was willing to make some sort of payment, my payment was about €1200 p\m at the time, they asked me to pay €600 for 3 months, I have to say they were great to deal with.
At this point (And looking back in hind-sight was probably the worst decision i ever made) i asked would it be possible to extend the term of the mortgage as the the €1200 p\m would be a bit tight with a new baby, and I knew we had a further embryo to use for a chance to extend our family.

[In 2016] To my surprise KBC Bank brought my new mortgage payment down to €800 p\m and increased the term to its maximum 29 years, and in addition said that they would set our interest rate at 0.5% for a period of 5 years to as they put it "give us a chance to get back on our feet financially" I couldn't believe it, this was brilliant, I had never missed a payment, the few reduced payments were pre-approved by the bank, and the exception was that I over eagerly paid manually twice to the bank, on the 1st and 28th of the month our baby was born, this men't that the following calendar month showed no payment on the mortgage at all, i didn't understand the way it was calculated at the time, and i did get a bit of nasty mail relating to this.

Anyway at the end of the 5 year deal for the 0.5% interest (2021) it coincided with KBC Bank leaving the Irish market, They had informed me that my mortgage was being sold to CarVal investments managed by Pepper finance.
before the switch over I had the property revalued and used the LTV of 46% to fix my interest rate to 2.6% for 5 years.
I asked a financial adviser to aide switching my mortgage to a open bank, anything that is not a vulture fund or closed bank.
The response was that no bank is interested in taking on your mortgage.

I have just over 3.5 years left on my fixed rate, I'm very worried about the increase I will be facing in a few years.
I contacted pepper finance, they are not at all helpful or even approachable, they said they couldn't continue to offer a fixed rate once my existing one has expired, they wouldn't even tell me how much I owe on the remaining mortgage, nor do they issue any yearly statement of whats owed, I have to work it out myself from old KBC bank statements.

Valuation of property : €370,000
Estimated mortgage balance: €164,000
Term left on mortgage: 23 years
Age of applicant: 47 years
LTV of mortgage: 46%
Current monthly payment: €800
Salary: €30,800

My wife is not on the mortgage but only works part-time and is on carers allowance, taking that into account and bonuses I get from work we have a household income of about €52,000 with 2 kids school going age.
I know its not as desperate a situation as most people that are considered mortgage prisoners, but anything over €1,000 p\m is going to potentially send us down a path of defaulting on payments.
I desperately need to get away from these guys and onto a fixed rate with a bank.
any advise on the direction to take please.

 

[RichInSpirit]

Hi Red Runner.
You are being very pro active, thinking 3. 5 years down the line.

The amount of your mortgage is not huge. And you have great LTV. And a decently long repayment term.

I stand to be corrected on this but even though you are on a fixed rate at the moment you could overpay your mortgage for the next 3.5 years by a certain amount without penalty. That would bring down your principal a bit more and mean that even if you were charged a penal interest rate after 3.5 years the repayments would be more affordable.
Another route to look at if none of the main stream banks will give you a mortgage is a credit union mortgage.
St. Canice’s in Kilkenny have Gazillions of Euro to lend. If they won't lend to you today you have 3.5 years to build up a relationship with them.
I would approach them immediately and talk to them and see what it would take to get a mortgage from them.

Also Brendan has a mortgage calculator posted here where you can look at various interest rate scenarios https://www.askaboutmoney.com/threads/mortgage-payment-calculator.230513/

 

[RichInSpirit]

Hi Red Runner.
Also get your credit report.
It's free to get from the Central Credit Register.

Central Credit Register|Central Credit Register

The Central Credit Register (CCR) is being established by the Central Bank of Ireland, under the Credit Reporting Act 2013.

www.centralcreditregister.ie

If Pepper are not supplying you with statements ets. then this should have all the important information that you are missing.

I got mine a couple of months ago and it has a 5 year list of all principal balances on loans. Reducing over time if you are paying loans off. It doesn't show interest payments but these could easily be worked out from the principal payments.

 

[luckystar]

This is dead right. You can get 1% on a regular saver with AIB now. Even after DIRT you will make more in interest here than you will save in interest paying off a mortgage at 0.5%. I would imagine these retail savings rate will only go up in the course of 2023.

A savings record can only help if the OP is looking for a new provider in 3.5 years time.

Previous rate was 0.5% - current rate is 2.6% though redrunner mentions €800 repayment on both interest rates

Hopefully in 3.5 years the rates being offered will be more aligned to mainstream banks - it’s shocking that subprime lenders are literally price gouging their customers. And these are folk generally who are most at risk of defaulting!! Ludicrous

 

[Brendan Burgess]

Anyway at the end of the 5 year deal for the 0.5% interest (2021) it coincided with KBC Bank leaving the Irish market, They had informed me that my mortgage was being sold to CarVal investments managed by Pepper finance.
before the switch over I had the property revalued and used the LTV of 46% to fix my interest rate to 2.6% for 5 years.

Hi luckystar

Thanks for clarifying. The figures now make sense.

interst compounding	Monthly	Adjusted interest
Mortgage amount	164,000.00	12​	Monthly payment	Monthly interest
Term remaining (months)	276​
Current interest rate	2.60%​	0.216667%​	€790.10​	€355.33​
Interest rate 2	5.00%​	0.416667%​	€1,001.07​	€683.33​
Interst rate 3	7.00%​	0.583333%​	€1,197.07​	€956.67​
Interst rate 4	8.00%​	0.666667%​	€1,301.26​	€1,093.33​

 

[Brendan Burgess]

OK, that does change things.

With 3 1/2 years to go and it is costing you 2.6%, I think, that instead of saving, you should overpay your mortgage.

Around a year before the fixed rate is up, you should review the strategy. It might make more sense then to save up to meet the increased repayments.

It does not appear that you are in a restructuring arrangement at the moment, so it's possible that your credit record began healing in 2021 and you may be able to switch in 2026

Brendan

 

[skrooge]

It's not clear if the OP will be eligible to switch mortgages in the future. Even if they are post 5 years of restructuring there is always the possibility they do not meet the future lending criteria of other mortgage providers. The question then becomes how best to position their finances over the next 3.5 years to withstand any higher variable rate.

With their currently low(ish) interest rate they could save any excess funds to offset against future high rates or put it against their mortgage now? Current mortgage rate is 2.6% so you would need to be getting a deposit rate of close to 3.9% to be better off saving rather than paying down mortgage when DIRT is factored in. You won't find that rate in the market presently - though some of the fixed rates offered through Raisin are a lot closer than the Irish offerings. So assuming you have a rainy day fund you're probably better off putting any excess funds towards the current mortgage.

How bad might it be in 3.5 years? As Brendan says you'll have paid down about €20k. You'll have an outstanding mortgage of €145k with a term of 19.5 years.

You mention €1000 pm being your breaking point. Given the lower mortgage balance it would mean in 3.5 years a mortgage tipping point of 5.4% .

Let's assume you can overpay your mortgage by that extra €200 pm over the next 3.5 years. That would reduce your mortgage to €135k. That would give you more room for higher rates. In this instance the €1000 per month threshold would not be reached unless rates hits 6.2%.

The current high water mark by funds - at least the ones I've heard of in the media - is about 7% . There is no guarantee that will be the the rate you'll face in the future but it would suggest in your current position you may struggle even overpaying at your current mortgage rate. However, 3.5 years is a long time. Things to consider between now and then is how can you improve your ability to pay a higher mortgage. Is there scope to negotiate a pay increase for you and/or your wife? The current employment market is tight and this might aid you in asking for a pay rise. Alternatively would it be worth your while looking to change jobs. Might there be scope in the future for your wife to work longer hours?

You might also consider a money makeover thread. There may be areas you could look to save on expenditure now which will help improve your capacity in 3.5 years.

 

[REDRUNNER]

Thanks for all the help, I had no idea that i could possibly overpay with the likes of "pepper" I'll ring them to request that for starters.
the credit union could also be a good option at the end of the current fixed rate.
My current employment has in the past provided unlimited overtime. Its currently reduced to a few hours a week, but I think it will return and I may be able to add to savings in the next 3.5 years to hopefully make a switch more attractive to a open bank or lender.

With two small kids it seems like my wife may not be increasing her work hours for some time yet...but also not impossible.

 

[AlAndalus]

Just one other thing on this, Pepper are required to issue you with an annual statement so I wouldn't let them away with not issuing one. If you don't get one from them I would make a formal complaint to them.