# Which debt should I tackle ?



## Largebrandy (26 May 2011)

Hi all , advice needed, €40k lump sum available to pay down some debt , but which one ?
1.  Home loan , tracker .85 above ecb, €345k loan. 28 years left. worth €400k. 

2.  Buy to let , 4.5 variable , €181k loan.  22 years left. Worth €200k. 

3.  Buy to let, 4.5 variable, €286k loan. 23 years left. worth €210k

4.  To up loan, 4.03 variable , €86k loan. 26 years left. 

Loan 1 and 4 are full repayments. 
Loan 2 and 3 are I/o but due to go full repayments next month. 
Rental income just about meeting I/o. However o calculate that I willhave to pay extra €700 pm to meet fill repayments. This will cause serious problems. 
What to people here advise ?  Thank you


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## Brendan Burgess (26 May 2011)

If the repayments are going to cause you serious difficulty, then I would suggest that you are overexposed to property, rental income and interest rates. 

So your question should be; Which properties will I sell? 

It seems to me that you should sell the two investment properties. If the sales proceeds are insufficient to pay off the mortgage, the lender might not let you sell them. So you should keep your €40k and use it to reduce the deficit on the house you sell. 

If you choose not to sell or if you can't sell a property, then you should keep the €40k so that you can fund your repayments. If you can't meet your repayments on your investment properties, then there is a risk that the lenders may up the rate on them in exchange for leaving you on interest only. 

You could negotiate with the lenders and pay the cash up front now on the investment properties in exchange for extending the interest-only period for another 5 years.

If the top-up is on your home, this would be the financially most profitable one to pay off, as you are not getting any tax relief on it, so the net interest rate after tax-relief is the highest. 

If the tracker mortgage is on your home, you would get an extra 10% for paying off that mortgage, but in your case, I don't think it's worth it.

If the investment properties are with Bank of Scotland, then you should have a chat with them and ask them to do a deal with you. They may let you off the defict. 

All in all, I think you should retain the cash.


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## Largebrandy (27 May 2011)

thank you for the reply brendan. What would you say to the following thoughts.....
sell both buy to lets for , say 400k, this leaves neg equity of circa 60k. add top up loan,  85 + 60= 145k. go to bank, and try negotiate this debt forgiveness in exchange for giving up tracker on home loan .........


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## Brendan Burgess (27 May 2011)

Who is the lender? Is it the same lender on all three properties? 

I would be reluctant to switch from a cheap tracker on your home to a standard variable rate. 

Brendan


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## Largebrandy (27 May 2011)

Agree that tracker is gold but if i could swop all other debts for the switch to variable would it make financial sense ? or should i be looking for extra debt forgiveness ? how do i calculate how much the tracker is actually worth to me ?
thanks.


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## Brendan Burgess (27 May 2011)

Here is how to calculate how much it is worth to pay off  a tracker early. 

http://www.askaboutmoney.com/showthread.php?t=153229

I suppose you could use the same assumptions. In other words, work out how much it is worth to pay off €345k of a cheap tracker early. That is similar to what it is worth to switch to a variable rate.


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## cremeegg (31 May 2011)

Largebrandy said:


> Hi all , advice needed, €40k lump sum available to pay down some debt , but which one ?
> 1.  Home loan , tracker .85 above ecb, €345k loan. 28 years left. worth €400k.
> 
> 2.  Buy to let , 4.5 variable , €181k loan.  22 years left. Worth €200k.
> ...



Leave the home loan tracker as is, don't try to swap it for some concession on one of the other loans, you will lose out.

Sell property 2. I don't understand how in practice you could sell property 3 with that level of negative equity. On your figures sale of property 2 will increase your cash holding by €19k. Lets call that €10k to be prudent. Now you have €50k cash.

By now all remaining loans are full repayment. How much is your shortfall per month. If you use the €50k to reduce one loan it should cut your repayments by approx. €300 per month. 

Which loan to pay. First what is the tax situation. If you are not getting tax relief on the top-up, then pay the €50k against that. If you are getting tax relief, which loan will reduce your monthly repayments more?

I suspect it will be the top-up also.

I would keep the cash until the sale of property 2 closes.


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## Largebrandy (31 May 2011)

thank you for reply. have to be careful to make right decision here, bank is not at all helpfull. Their mantra is no to all my ideas, basically if i could get 5 years i/o to ride out the storm i would be in a far better financial situation. The most they* might*  offer me ,they say ,is six months! How is that any help ?  They wont let me consolidate debt, wont let me transfer some debt to tracker, wont let me sell neg equity house and transfer debt, wont extend term of buy to lets. I have given them a full statement of means showing that i am incapable of paying full repayments. It seems to me that they are quiet  happy for me to go into arrears. Why is this ? What do they have to gain ?


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## Surfer (1 Jun 2011)

If it is any consolation, my bank is doing the exact same thing to me. I have been talking to them for months trying different ways to pay back as much as I can, while staying out of default, but they seem hell bent on pushing me into default. Once you’re in default, their collections team will probably do a deal, but by then you’ve lost your credit rating. Stupid and un-necessary, but there you go. You’re not alone!


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## Nikephorus (8 Jun 2011)

Hi Largebrandy, I sympathise with your plight. For what it's worth (and I know I'll get flamed here because of my own very tight, but gradually improving, plight - see earlier posts), I would clear some or all of the topup loan. Although it's not the highest interest rate, it would be a boost having an end in sight for one of your loans. 

Is your earned income steady? What would the saving be per month in clearing €40k of that loan? I presume that you have already looked for cheaper insurance and running costs for the houses? Best of luck with it all. Sounds like a headache, but as Surfer said... you're not alone.


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## oldnick (8 Jun 2011)

I dont know if my recent experience helps -I suspect it'll depress you more...

I'm trying to dispose of two properties on which there's neg.eq.
The loans were i-only and should have gone to full repayments several months ago.
I  told bank AIB I would not pay them any more than the interest until i sold them and they were welcome to take all sorts of action if they so wished.
So far, in eight months nothing has happened.
(The bank knows I have other properties on which nothing is owed  - so maybe that's why they've done nothing. They can pounce on me later)


Each bank is different - and other posters with experience on this can tell me I'm wrong.  I believe  that you should NOT overly worry about the bank huffing and puffing about default etc. My own experience and that of a few other investor friends is that banks don't really want lots of property,  and  if you can pay the interest and perhaps a bit of the capital from time-to-time they 'll make noises but won't go to court for a long long time.

Now -the bad part. I ,along with other friends selling property, are finding that even our most pessimistic sales price estimates are too high.  Sure, sell no 2 -but I hope I'm wrong in suspecting that you may get less than your estimate.


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## Largebrandy (11 Jun 2011)

hi all, thanks for replies......
*surfer*...indeed, thats the problem, I dont wont to go into arrears as my credit rating is shot and then no hope of getting mortgage in the future, 

*Nikephorus*...yep, leaning towards paying off top up loan, but,  I presume ,I will lose tax relief against rental income ....

*oldnick*....interesting strategy you have employed with banks, may have to think along same lines......

sell the lot if i could.......


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## Nikephorus (13 Jun 2011)

Hi Largebrandy, can I ask... what are your financial aims with these properties? Are you looking for them to provide an income in the long-term? Would be interested to hear the viewpoint of someone who (like myself) is heavily indebted in the residential property game.


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## Largebrandy (13 Jun 2011)

Nikephorus.....originally plan was to sell properties in circa 5 to 10 years, profit ( ha ha ) then used to pay off ppr mortgage. As I see it , property will take  at least 15 years to come close to achieving prices which will allow me to break even. Rents have collapsed, mortgage rates are rising, stealth taxes are increasing, wages down, hard to see how to cope if banks refuse to engage in a meaningfully way with customers such as I.  If banks continue with this hardline attitude , in a climate of ever rising interest rates , it is obvious to me that an even greater collapse in the property Market is inevitable.  
Thanks for the interest.


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## Nikephorus (8 Jan 2022)

_Hi Largebrandy, do you mind sharing what way you went in the end and how it worked out for you?
*Cheers, Nikephorus*_


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## cremeegg (8 Jan 2022)

Largebrandy said:


> Nikephorus.....originally plan was to sell properties in circa 5 to 10 years, profit ( ha ha ) then used to pay off ppr mortgage. As I see it , property will take  at least 15 years to come close to achieving prices which will allow me to break even. Rents have collapsed, mortgage rates are rising, stealth taxes are increasing, wages down, hard to see how to cope if banks refuse to engage in a meaningfully way with customers such as I.  If banks continue with this hardline attitude , in a climate of ever rising interest rates , it is obvious to me that an even greater collapse in the property Market is inevitable.
> Thanks for the interest.


Ah yes the great property collapse of 2012. I remember well.


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