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Tuesday 26th September 2017
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Case Studies

 

We have put together a suite of case studies to illustrate different circumstances and the solutions that some lenders offer. If you have any additional questions or queries please feel free to contact us here.

 

Split Mortgage

 

Mary and Joe are married with 3 children aged 7, 9 & 14. Mary works full time in a well known retailer and Joe is a civil servant. They have a combined income of €4,000 per month and in addition receive child benefit of €390 per month. They have a mortgage on their family home of €375,000 and the house is worth €190,000. Full repayments are €1,800. Due to wage cuts and additional taxes they are having difficulties paying their mortgage and are currently €11,000 in arrears.

They approached IMHO who obtained financial information from them and then met with them to discuss their circumstances. On overview of their finances showed the following:

Income: €4,390

Reasonable Living Expenses: €3,000 (based on the guideline expenditure allowed by their bank)

Childcare Expenses: €400

Total: €3,300

Available to repay debt: €1,090

Based on the above information and following a submission to the bank they agree to a split mortgage with payments of €1,000 per month. This is based on what Mary and Joe can afford to pay and see’s 55% of the loan being repaid by Capital and Interest  payments of €1,000 per month with the remaining €45% of the loan warehoused at 0% interest for the lifetime of the loan. They have a tracker mortgage with repayments of

Certain lenders do offer an enhanced version of this product which includes in certain circumstances a portion of the warehoused loan being written off. Conversely other lenders offer a product which require interest payments to be made on the warehoused portion. Similarly there are a number of different factors such as review clauses, future pension and lump sum provisions and what happens eventually to the warehoused portion of the loan which IMHO can provide further advice and guidance on.

 

Reduced Interest Rate

 

Susan and Andy are married with no children. Susan works part time as an administrator and Joe is a sales manager. They have a combined income of €2,900 per month. They have a mortgage on their family home of €300,000 and the house is worth €240,000. Full repayments are €1,750. Due to the loss of Susan’s full time job and additional taxes they are having difficulties paying their mortgage and are currently €17,400 in arrears. They have a variable rate mortgage on their mortgage of 3.95%.

They approached IMHO who obtained financial information from them and then met with them to discuss their circumstances. On overview of their finances showed the following:

Income: €2,900

Reasonable Living Expenses: €1,712 (based on the guideline expenditure allowed by their bank)

Available to repay debt: €1,188

Based on the above information and following a submission to the bank they agree to reduce the interest rate to 0.5% for a period of 6 years. This reduces the full repayment to €1,100 per month which Susan & Andy can afford to repay.

Certain lenders do offer various levels of rate reduction and not every rate reduction product reduces the rate to 0.5%. Similarly there are various time periods for which the rate is reduced – usually 3 years is the minimum with 6 years the maximum. After the reduction period expires the interest rate reverts to the prevailing variable rate at the time, however the product is supposed to be designed that the accelerated reduction in capital over the period of the reduction will reduce the balance such that full repayments at the higher interest rate will be at or around the payments when the rate was reduced.

 

 

Mortgage to Rent

 

Simon and Anne are married with a boy and a girl aged 4 & 14. Anne lost her job previously and is unemployed and Simon works part time in manufacturing. Previously he was a full time employee of the company but his hours have been cut in recent years. His hours are unlikely to increase. Simon has an income of €1,750 per month and in addition receive child benefit of €260 per month. They have a mortgage on their 3 bedroom family home of €315,000 and the house is worth €170,000. Full repayments are €1,950. Due to wage cuts and the loss of Anne’s job they are having difficulties paying their mortgage and are currently €17,500 in arrears.

They approached IMHO who obtained financial information from them and then met with them to discuss their circumstances. On overview of their finances showed the following:

Income: €2,010

Reasonable Living Expenses: €2,500 (based on the guideline expenditure allowed by their bank)

Available to repay debt: €0

They want to remain in their home and the IMHO approached their lender and requested that they are put forward for the Mortgage to Rent scheme. This will allow for the property to be sold to a voluntary housing association and the family to remain in the property as tenants. The family require to be put forward for the scheme by their bank and there are strict criteria to access it (for example the property must be worth less than €180k (€220k in Dublin) and must be of a reasonable size for the family.

 

In this circumstance the bank agreed that the price paid for the property by the voluntary housing association will be accepted in full and final settlement of the debt.

 

Mortgage to rent is a complex process and if you would like some additional information on it please contact us here

 

Affordable

 

Tony and Oonagh are married with 1 child aged 3. Tony works full time in an insurance company and Oonagh works 3 days per week in a well-known retailer. They have a combined income of €3,900 per month (Tony €2,500 and Oonagh €1,400) and in addition receive child benefit of €130 per month. They have a mortgage on their family home of €290,000 and the house is worth €210,000. Full repayments are €1,350. Due to wage cuts and additional taxes they are having difficulties paying their mortgage and are currently €9,000 in arrears.

They approached IMHO who obtained financial information from them and then met with them to discuss their circumstances. On overview of their finances showed the following:

Income: €4,030

Reasonable Living Expenses: €2,000 (based on the guideline expenditure allowed by their bank)

Childcare Expenses: €600

Total: €2,600

Available to repay debt: €1,430

As their mortgage is €1,350 per month the bank considered that the mortgage is affordable in full and refused to restructure it. However the issue of the arrears still required to be dealt with.

Following negotiation by IMHO the bank agreed to capitalise the arrears. This means that they are added back to the mortgage and repaid over the remaining lifetime of the loan. This means that the full mortgage repayment will increase. If the payment increased above would be affordable for the family i.e. above €1,403 a term extension of the loan would be required to make the monthly repayments affordable.

 

Unsustainable

 

Maurice are Genny are married with 4 children. Maurice previously had a business in the construction sector that is no longer trading. Genny is unemployed. As Maurice was previously self-employed he is not entitled to social welfare and the family rely on Genny’s social welfare (both Job Seekers allowance and Family Income Support) along with child benefit received totalling €2,170 per month. Maurice also does some casual work earning c€400 per month.

They have a mortgage on their family home of €325,000 and the house is worth €260,000. Full repayments are €1,650. They are having severe difficulties paying their mortgage and are currently €27,400 in arrears. The bank has commenced legal proceedings to have the house repossessed. The case has been adjourned on two occasions and is due before the court again in 6 weeks.

They approached IMHO who obtained financial information from them and then met with them to discuss their circumstances. On overview of their finances showed the following:

Income: €2,570

Reasonable Living Expenses: €3,000 (based on the guideline expenditure allowed by their bank)

Available to repay debt: €0

In this circumstance there was no ability to make repayments to the mortgage and the mortgage was deemed unsustainable by the lender. Following negotiation with IMHO the bank agreed that if the property was returned to them, or sold, that they would accept the balance of the loan in full and final settlement of the debt. They will also allowed 6 months for the family to obtain rent allowance and find suitable rental accommodation to move to.

Please note the above example is not reflective of all lenders. Some lenders will not agree to writing down the residual balance if a property is returned or seek a lump sum payment. The advice of the IMHO is never sell or surrender a property without an agreement as to what happens the residual balance after the property is sold.

 

© 2017 Irish Mortgage Holders Organisation

mortgageholders.ie is a trading name of Irish Mortgage Holders Organisation Limited.
Registered office Unit 12, The Capel Building, St. Mary’s Abbey, Dublin 7
Registered in Ireland, Company number 517549.


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