Extension of Interest Only Term of BTLs

[shej]

Hi
Looking for some advice on how best to proceed, I have two BTLs (country town - 20 miles from Cork) which were are a 25 yr Tracker (1.1%) with the first 10 years interest only (I/O) with PTSB. The ten yrs are up in mid 2017 (bought height of bubble!!) and I am querying how I would go about extending the I/O for a further period possibly 5 yrs as my private house (PPR) would be paid off then - I have been working on trying to reduce my PPR mortgage its a SVR (3.35%) with AIB.
A summary of my details:
PPR Value €360k - outstanding mortgage €150k
Two BTLs value €320k (i.e. €160k ea.) - outstanding mortgage €647k
Nett Income €8,500 pm (both spouse and I in HSE with combined gross income of €160k p.a.)
Expenses p.m.: Mortgage and Ins: €2800 - mortgage finishing 2021.
Childcare (2 children- 1 yr and 5yr) €400; 2 x Cars €1000 (04 & 08 reg so need to upgrade one next year); House utilities €2000pm (AVCs, Groceries, Sky, Refuse, Water, Insurances, Gas, Maintenance, Fuel, ESB, Mobiles, B/band etc.).
College savings plans: Children's allowances plus €200
Leaves us with disposeable income of c. €2000pm. I fully understand I'm not on the breadline and we have full permanent pensionable government jobs!!

Rent on BTL €1000 pm and current BTL mortgage €600, at end of year any excess after expenses etc I put again my PPR mortgage (PTSB may not be too happy when they find that one out)
By my own calculations , if I have to go to full interest and capital in 2017, the BTL mortgage will 4,200 pm (3600k capital and 600 interest). Even with high dispoable income. I would be unable to meet this with my current PPR mortgage.

So my query is, do I approach PTSB myself early in 2016 and ask could the I/O be extended until 2021 when PPR paid off and then I could start full capital and interest mortgage and how do people think they would view this suggestion. Should I bring a financial person with me to negotiate? if so, any recommendations of who (Cork region). I appreciate they will probably want me to pay any excess from BTL's to them. In 2021, I would hope some further appraciation in BTL values and would consider selling one or even both and dealing with shortfall then.
As I said I understand I have good disposable income but we both work long hours and have significant responsibility so I'm just trying to seek a way out of current impasse

 

[shej]

Correction to figures above; Should have read Childcare €1400 per month and consequent disposable income of c.€1000 pm...... Tks

 

[landlord]

Without running all the numbers, as things stand in mid 2017 you are due to repay CAPITAL and interest payments on two investment mortgages for the remainder of the term of the mortgage i.e. 15 years. You say this figure for capital and interest repayments is €4200 per month.
If you do get an extension of five years you would have to pay off the capital of the two mortgages with in a reduced term of only 10 years. This will push the monthly payments up MUCH higher. You need to calculate this figure just to have in the back of your mind. This is the kicking the can down the road approach. You're only saving grace in doing this is the possibility that house prices will rise to the point where you are able to sell them. As someone who has intimate experience with this, I would seriously recommend "as much as possible" trying to live within your means!!!! You must have a strategy for eventually paying off this debt and expecting house prices to rise significantly in you very narrow time window is risky.

 

[shej]

Thanks landlord for reply
In short I am kicking can down the road but is that much different that what government and banking institutions do with large debt though I'm no financial expert. Where I'm coming from is that I know I made a bad investment (location recommend by a friend who bought his 19th and 29th BTL, friendship has suffered, thays anothet story) and we have made significant lifestyle changes and as I said we both have responsible jobs with good salaries and we are trying to continue to live some sort of comfortable life. My exit strategy would be that in five years time, review again I will be 50 then, could ask PTSB to extend for 15 yrs then pay cap and interest til I'd be 65. Alternatively in five yrs sell one BTL and pay down the second, I would also by offering that at 65 we would have pension lump sums of near 180k etc.
As I said im just looking to live a relatively comfortable lifestyle not looking for a write down, (though would take one, I'm not harry crosbie I suppse!@!)
To get back to my query how do u think PTSB would consider my request and should I approach them on my own or with a financial advisor?
tks

 

[Dermot]

I have not run the figures either but from a basic reading of it from a PTSB perspective you have over €100k of a nett income from salaries. You have a surplus income from your letting. I am sure that PTSB would want an SFS statement from both of you before they would consider your case. I genuinely cannot see PTSB giving you an I/O extension for 5 years at your tracker rate. You might be lucky if you got an extension at an SVR rate on interest only for 5 years but that would not be much better than tracker rate + principle.
Are all the houses and mortgages in both of your names.
I do think you need good financial advice from a professional. You have big decisions to make but at least you are giving yourself time to plan something out.
You have to work out whether it is best to sell or keep the BTL's
You have to consider putting your retirement lump sums into the debt solution plan.
You will have to make big adjustments to your life style spending as a part of the solution.
You are not in an easy place and I hope someone else can come up with a workable solution to your situation.

 

[Brendan Burgess]

Here is my summary of your figures

The repayments on €647k over 15 years are €3,900 per month.

There is a good chance that when you are due to go onto full repayments, that the interest rates will be much higher, so the repayments will be correspondingly higher.

"Expenses p.m.: Mortgage and Ins: €2800 - mortgage finishing 2021."

The repayments on €150k @3.35% are €2,000 a month.

In mid 2017, you will have reduced the mortgage on your home to about €130k. The interest only at that stage at 3.35% would be around € 400 a month.

The big risk for you is that if you fail to meet the repayments on your buy to lets, ptsb may appoint a Receiver.
You have to avoid this at all costs or defer it as long as possible.

It's hard to predict what ptsb will do. They should refuse to extend the term of your trackers. They should insist that you sell them and repay the shortfall, which you will be able to do out of your net income. But they might actually grant you an extension, so you should ask for that.

Your family home is protected by the CCMA, your investment properties are not. So when the interest only period is up, you have to prioritise paying the investment properties. AIB should be quite happy to extend the term of your home loan. The rate is the market rate, so it's very profitable. There will be plenty of equity so there is no risk. If AIB refuses to extend the term, then just pay them the interest only. You will get away with this for some years as it's your family home.

Of course, if ptsb extends the term on the buy to lets, that is much better for you because the effective interest rate after tax is only about 0.6%.

You have a few options to consider
1) Continue overpaying your home loan because that has the highest rate. Tell AIB that they should be treated as overpayments or payments in advance, so that you can take a payments break when you need to pay your investment properties full Cap and interest.
2) AIB might not treat the overpayments as such and might not reschedule your mortgage. So maybe you should be building up a savings pot now, from which to meet the full repayments on your investment properties. The problem with this is that you will be getting such a low rate of interest on these savings.
3) Talk to ptsb now. Ask for a 10 year extension to the term of the loan in exchange for making full capital and interest payments now. I doubt that they would go for it, but it might be worth trying.
€647k @1.1% over 22 years would be €2,760 a month.
4) Sell the family home and rent. You will have €200k of cash with which to keep up the repayments on the buy to let mortgages. I don't think you will need to do that. But it's worth noting it as an option.
5) Sell the family home and move into one of the buy to lets. I presume that is not an option.

 

[Brendan Burgess]

AVCs

College savings plans: Children's allowances plus €200

You face a real risk that ptsb may seize your buy to lets and that would be disastrous for you. You must forget about AVCs and college savings plans for the moment. Put all this money against your home mortgage.

The best return you can get on your "college savings plans" would be the 3.35% net you get by paying down your mortgage.

When ptsb sees that you have a €20,000 "college saving plan", they will want you to use it to meet your mortgage repayments. So you might as well use this fund to pay down your home loan now. Likewise, they won't extend your mortgage so that you can put money into AVCs.

Expenses p.m.: Mortgage and Ins: €2800

The insurance seems very high. Have you shopped around? Have you too much insurance.

Mortgage protection insurance is important. But keeping your buy to lets and their associated trackers is far more important.

Brendan

 

[Brendan Burgess]

In short I am kicking can down the road but is that much different that what government and banking institutions do with large debt though I'm no financial expert.

There is absolutely nothing wrong with kicking a can with an interest rate of 1.1% down the road. If ptsb allows you to extend the interest only period, then you should fully avail of it.

If you do get an extension of five years you would have to pay off the capital of the two mortgages with in a reduced term of only 10 years

This is a very important point. You will need not just an extra 5 years of interest only, you will also need a term extension.

If you make the full capital and interest repayments, you will be paying around €40,000 capital off your mortgage each year. If house prices don't increase, you would be out of negative equity in 7 years and would have many more options at that stage. Of course house price changes could have you out of negative equity sooner or later.

 

[shej]

Tks brendan for such a detailed review, its a huge amount of information to digest. Its makes me think that I do really need to hire a financial advisor as the thought of engaging with the bank by myself is very daunting to me. Would there be anbody in the cork city area you could recommend?
I will look into the insurance to see if Im overpaying
Could u explain what u mean by overpayment with my motgage, as I said I have made once off payments to AIB but always asked that they be treated to reduce the term as I thought that was the most cost effective - I'm due again to make a 5k payment again soon.

 

[Brendan Burgess]

Tell AIB that you want to make sure that you can take a payment holiday if you need one to "use up" the overpayments. They will probably refuse, but request it in writing so that if you are forced to take a payment break unilaterally, you will have a written record of requesting it.

It is never correct to ask the bank to reduce the term. Make sure to reduce the repayment and not the term. You can continue overpaying in any event.

It is very unlikely that you would find an advisor who would give you better advice than you are getting here, unless you are hiding some information from us which you tell the advisor. You will also get a variety of opinions here.

Brendan

 

[shej]

I have given all my details here alright it just that I would be quite intimidated approaching PTSB on my own
in relation to the overpayments and the term, apologies if i dont understand, if for example I pay off 5k and the repayment drops to 2700, would it not be better to reduce the term by two months as I can afford to pay 2800, - would this be more cost effective in terms of reducing the associated interest or is it that by reducing to 2700 I can use this 100 to put towards the BTLs
tks again

 

[shej]

I have not run the figures either but from a basic reading of it from a PTSB perspective you have over €100k of a nett income from salaries. You have a surplus income from your letting. I am sure that PTSB would want an SFS statement from both of you before they would consider your case. I genuinely cannot see PTSB giving you an I/O extension for 5 years at your tracker rate. You might be lucky if you got an extension at an SVR rate on interest only for 5 years but that would not be much better than tracker rate + principle.
Are all the houses and mortgages in both of your names.
I do think you need good financial advice from a professional. You have big decisions to make but at least you are giving yourself time to plan something out.
You have to work out whether it is best to sell or keep the BTL's
You have to consider putting your retirement lump sums into the debt solution plan.
You will have to make big adjustments to your life style spending as a part of the solution.
You are not in an easy place and I hope someone else can come up with a workable solution to your situation.

Hi dermot
you asked were BTLs and home in joint names, yes they are, is that significant?

 

[PaddyW]

I have given all my details here alright it just that I would be quite intimidated approaching PTSB on my own
in relation to the overpayments and the term, apologies if i dont understand, if for example I pay off 5k and the repayment drops to 2700, would it not be better to reduce the term by two months as I can afford to pay 2800, - would this be more cost effective in terms of reducing the associated interest or is it that by reducing to 2700 I can use this 100 to put towards the BTLs
tks again

My reading would be that you're better to reduce the payment to 2700, but keep the payment at 2800 without reducing term. That way, if 1 or 2 months you could only afford the 2700 you're still meeting your payment terms and not running into arrears. Paying the 2800 per month is reducing your term anyways, you just haven't committed yourself to having to meet figure that every month (even if you can).

 

[Brendan Burgess]

My reading would be that you're better to reduce the payment to 2700, but keep the payment at 2800 without reducing term. That way, if 1 or 2 months you could only afford the 2700 you're still meeting your payment terms and not running into arrears. Paying the 2800 per month is reducing your term anyways, you just haven't committed yourself to having to meet figure that every month (even if you can).

Excellent explanation.

Brendan

 

[shej]

Tks paddy w and brendan again for that, ill pay out the 5k to AIB and continue with the 2800.