# Split mortgage offer - not sustainable - advice needed



## LRC (2 Jan 2015)

Hi,
Just hoping that somebody out there can provide me with some advice in regards to my mortgage problems.  I have a mortgage on my own which is in negative equity and i can not make the repayments on.  I have been offered by my bank a split mortgage option on which I will pay monthly capital and interest repayments on a main mortgage account - over €200,000 and the bank will warehouse the additional €100,000 at 0% interest rate which will be payable at the end of the mortgage term.  i have no other debts or dependents.
I guess the advice I am looking for is what other options can I explore as I don't feel that the above is a long term sustainable option.  Even with the reduced mortgage i cannot save and I feel the property is a noose around my neck.  
Two options which I feel would allow me some breathing space is 
1) the bank to write off the warehoused part of the debt, or, 
2) Sell the house and submit all sale proceeds (less costs) to the bank in full and final settlement of the mortgage outstanding.
Has anybody been through this and has advice on this and are there other options I could explore?
I have approached Irish Mortgage Holders Organisation for advice and am awaiting feedback from them.

Thanks very much for any feedback received.


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## Sarenco (2 Jan 2015)

LRC said:


> Hi,
> Just hoping that somebody out there can provide me with some advice in regards to my mortgage problems.  I have a mortgage on my own which is in negative equity and i can not make the repayments on.  I have been offered by my bank a split mortgage option on which I will pay monthly capital and interest repayments on a main mortgage account - over €200,000 and the bank will warehouse the additional €100,000 at 0% interest rate which will be payable at the end of the mortgage term.  i have no other debts or dependents.
> I guess the advice I am looking for is what other options can I explore as I don't feel that the above is a long term sustainable option.  Even with the reduced mortgage i cannot save and I feel the property is a noose around my neck.
> Two options which I feel would allow me some breathing space is
> ...



I wish somebody would offer me a long-term interest free loan!

Seriously, if you can meet the repayments that looks like a fantastic deal to me.  Why do you think your lender should write off your debts?  Do you think it is reasonable that somebody else should pick up the tab?


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## Brendan Burgess (2 Jan 2015)

Hi LRC

You will need to provide the following information to get a meaningful answer: 

*Information required for mortgage arrears and negative equity questions*


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## LRC (2 Jan 2015)

*Income details
Net monthly €3,000* - public servant 


*Personal circumstances so we can calculate your reasonable living expenses The Insolvency Service has published Guidelines for Reasonable Living Expenses based on the family size, whether or not you need a car for work, childcare costs and other exceptional circumstances. By filling in this information, we (or you ) can calculate what your reasonable monthly living expenses should be. 
One adult family or two adult family
Do you need a car for work or do you use public transport? *Need a car at times and can also cycle.
*Number of children: *No dependents

*Home loanLender: *PTSB
*Amount outstanding: *€340,000
*Value of home: *€200,000
*Interest rate: specify whether tracker or SVR or fixed rate *4.5% variable
*Monthly repayment *€1,700
*Amount in arrears *

*Summary of discussions and agreements with the bank: *As first post above - currently paying €1,200 - offered Split Mortgage

*Other savings and investments: *I have no other savings or investments

*Do you expect any lump sums in the medium term future? Redundancy, inheritances, injuries awards. *No

*How important is retaining the family home to you? Which of the following best describes your situation?*
I would like to keep it, but will get rid of it if it means I can get rid of the mortgage associated with it.


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## Sarenco (2 Jan 2015)

If I'm reading your figures correctly that leaves you with €1,800 net per month (ex-housing costs).  I would have thought that would sustain a very good lifestyle for somebody with no dependants.  Perhaps I missing something.

As a public servant you are presumably in the fortunate position of not having to fund a pension.  Also, under current rules you will presumably get a generous tax free lump sum on retirement that you could use to discharge any remaining mortgage liabilities.

When you say you need a car at times, is this for work purposes or is it really a "nice to have" luxury?  Maintaining a car is a significant expense and, if you don't absolutely need it, this would be the first area I would look at to make savings.

Finally, there may well be special circumstances at play here that you have not specified and I apologise in advance if I have made any inappropriate assumptions.  However, on the face of it, I think your lender has been more than generous with their offer and if I was in your position I would grab it with both hands.


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## Brendan Burgess (2 Jan 2015)

ptsb does not write down debt. So they will not reduce the mortgage and allow you to stay in your home. 

They _might _allow you to sell your home which will leave you with a shortfall of €140,000. They would probably require you to pay around €1,400 a month for 6 years before writing off the balance. 

So what are your options? 
1) Accept the split mortgage 
2) Apply for permission to sell the house and do a deal on the shortfall before selling it. 
3) Apply for a Personal Insolvency Arrangement 
4) Go bankrupt 

My gut feeling is that Accepting the split mortgage is your best option. You will keep your home. You didn't tell us the repayments, but I reckon that they will be around €1,300 per month. Will you be able to rent somewhere else for this price if you go bankrupt or sell your home? I doubt it. 

You will be paying down the capital by around €5,000 a year.  After 10 years, the total mortgage will be reduced to c. €270,000.  If house prices rise by 35% over the next 10 years, then you will be out of negative equity.  You have to take a view yourself of  the future of prices where you are living, but accepting the split mortgage gives you a chance of getting out of negative equity under your own steam, so to speak.   

But the key for me, is that you will have security of tenure and accommodation costs of around €1,400 a month. 

If you go bankrupt, it will take about 5 years before you get clear of all your debts, but obviously you will have lost your home.  It will be very difficult for you to get a mortgage for many years to come if you go bankrupt. 

The downside of the split mortgage is that house prices don't rise, but interest rates do. After 2 or 3 years, you are still in the same deep negative equity and you go bankrupt then anyway.  So you are delaying getting out of this by 3 years. 

*Personal Insolvency Arrangement *
A PIA is not really suitable for you as you have only one creditor. ptsb is likely to veto any deal as they have offered you a generous split mortgage. 

However, if you have a relative or friend who could lend you or gift you €30k,  ptsb might approve a 6 month PIA.  You sell the house and they accept €30k in full and final settlement of the shortfall.  

Having said that, if you have a family member prepared to lend you that money now, then you should offer it to them as part of the permission to sell the house. Make it clear to them that, if they do not agree, you will go bankrupt.


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## Sarenco (2 Jan 2015)

Apologies, I read the €1,200 as representing the monthly payment post-split but looking at the figures again I assume it represents an interest only payment on the full amount outstanding - is that correct? I still think a split mortgage in the circumstances described looks sustainable (in the absence of any special circumstances).


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## LRC (3 Jan 2015)

Thanks for the feedback.

Burgess your point on the split mortgage has given me food for thought and even if I don't want to stay in this property for the next 10 years I do have the option of renting it out as it is located in a rentable area.  Although I do think that over the next 10 years interest rates will rise.

Sarenco, I appreciate your points above and I am not a person who believes somebody should pick up my debt issues hence I have never run up other debts. A bit of background, originally I bought the property with a partner and although the house would of gone into negative equity the mortgage would of been manageable between two and the debt greatly reduced than it is today. Unfortunately a year after buying the bank allowed me to transfer the full mortgage into my name and enter into an agreement that was completely unsustainable.  Since then i have tried on every level to keep up with my mortgage repayments and engaged with the bank at all times as I do want to pay my way.  However, at this stage, it has taken its toll on me and I feel very stuck.  I started this thread in order to get feedback on all possible options open to me and not to just automatically accept what the bank is offering - as the bank has their own interests at heart and not mine for the long term.  PTSB interest rates are the highest around.  Although the split option may be sustainable in the short term - long term I will still be very much in debt.


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## Brendan Burgess (3 Jan 2015)

LRC said:


> Unfortunately a year after buying the bank allowed me to transfer the full mortgage into my name and enter into an agreement that was completely unsustainable.



Hold on a moment.  How did you feel at the time when ptsb "allowed you a full mortgage that was completely unsustainable"? 

ptsb have been bending over backwards to facilitate you when you faced difficulty.


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## Dermot (3 Jan 2015)

Have you considered the rent a room scheme or is it an option for you. This allows you to take in a person and you can have an income of up to I think €10,000 incl bills tax free.


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## Sarenco (3 Jan 2015)

Thanks for coming back to us LRC.

I don't mean to sound judgemental, and I'm sure you have found the last several years tough going (haven't we all), but are you sure you aren't suffering from a sense of self-entitlement?  You freely entered into an agreement to borrow monies and your lender is offering you a very generous loan re-structure.  The real value of the parked element of your mortgage will reduce over time as inflation takes its toll.

It seems to me that your re-structured loan is entirely sustainable.  It leaves you with disposable income of circa €1,600 per month net after your monthly mortgage repayments.  There are many, many people that would look enviously at that level of disposable income for somebody with no dependants.

Of course PTSB are looking after their own interests - were you under the impression that they are a charity?  They are in the business of making a return for their shareholders (which happens to be the Irish taxpayer).  Any write-down of your loan will in effect have to be picked up by the taxpayer.

I know the above sounds harsh but you're actually not in a bad financial position compared to many.  Trim your expenses and/or increase your income, save the balance and you should be well able to pay back the parked element of your mortgage in the fullness of time.


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## Dermot (3 Jan 2015)

LRC.  It may appear to you that the Bank, Brendan & Sarenco are harsh but they are not as they are just telling you as it is.  You appear from what I read to be getting as good a deal as can be reasonably expected from the Bank.  I am well aware of the pressure that you must be under but you have to make sacrifices like everyone else to get out of your situation.  I know it is very difficult to think straight when you are under pressure.  You would appear to be quite capable of doing the maths so you have to make a judgement call.  You are aware of most of the options out there. Are you living in a large urban area?.  Things may look better in 5 years time.  Good luck to you.


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## epicaricacy (3 Jan 2015)

An extreme option would be to  take a 3 year career break from the public sector, head to Eng / Wales and secure low paid employment and declare bankruptcy after 6 months. One could then either return to Ireland for the 12 month discharge period
and work in a low wage job to avoid an Income Payment Order or remain in the UK for the 12 month discharge period.


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## Sarenco (3 Jan 2015)

I think LRC would be nuts to strategically default and declare bankruptcy.  Aside from the drop in living standards while establishing a new COMI in England, his/her credit rating would be destroyed which could have a serious impact on future options.

Besides which, it seems completely unnecessary.  LRC will have ample disposable income under the re-structured arrangement for reasonable living expenses - at least 60 per cent more than the amount that the ISI considers reasonable under their current guidelines (which are relatively generous IMO).  There also appears to be scope for LRC to increase income and/or reduce expenses.

Incidentally, the maximum amount that can be earned tax free under the rent-a-room scheme was increased from €10,000 to €12,000 in the last budget.


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## epicaricacy (3 Jan 2015)

I did preface my point by explaining that it was an 'extreme option'.
LRC was looking for 'all options' and has stated that he is not convinced by the warehouse option. I wouldn't blame him. It's soul destroying to be left with a 100k to pay at the end of the mortgage.
LRC needs to follow his own instincts and ignore the moral police.


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## Sarenco (3 Jan 2015)

Understood epicaricacy but the split mortgage still looks like "no brainer" to me in the circumstances as presented.  What really swings it for me is the fact that LRC works in the public sector and presumably doesn't need to fund a pension at the same time as setting aside savings to discharge the warehoused portion of the loan.  You could reasonably expect a gradual increase in earnings (at least in nominal terms) over time while the value of the warehoused portion of the loan will gradually reduce in real terms.  What's not to like about the proposal?

Edited to add:

I certainly have no moral objection to anybody strategically defaulting on a loan and declaring bankruptcy.  Far from it - from a lender's perspective it's simply a risk of doing business.  My advice to LRC to accept the offer of a split mortgage is simply based on what I consider to be in his/her best interests, taking account of all available information.

While I believe public sector pension benefits will have to be reduced in relative terms in order to be sustainable, I think it is highly improbable that the State will not make any pension payments at all to retired public servants.  If that scenario did arise, you would have to envisage that the economy would be in a state of extreme distress and repaying a warehoused loan would be the least of LRC's worries.

I'm not clear what property prices have to do with this discussion.  Sure, being in negative equity is not pleasant but the loan still needs to be discharged or otherwise dealt with, regardless of what happens to property prices.

I don't know whether LRC currently benefits from MIR but in any event the savings involved (particularly for a single borrower) are pretty minimal in the current interest rate environment (even at a relatively high SVR).


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## Brendan Burgess (3 Jan 2015)

epicaricacy said:


> It's soul destroying to be left with a 100k to pay at the end of the mortgage.



This is misleading and a common misunderstanding by many people. 

He has a mortgage of €340,000. If he pays it off according to the initial contract, it will be paid off over say 25 years. 

If he defers €100,000 , his repayments will be reduced, so of course, he will still owe €100,000. 

But he will have paid off €240,000 , so if the house does not change in value over the next 20 years, he will have a mortgage of €100k on a house worth €200k. 

In reality, general  inflation should erode the real value of the €100k liability.


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## LRC (3 Jan 2015)

Thanks again for all your comments, they are very much appreciated.

Just to note that I do not feel a sense of entitlement and I do realise that my situation is not the worst out there, by far. However, as stated previously, I wanted to explore all options and come to an informed decision on what's best for me - the split option may well be that.

Epicaricacy - interesting option re: England and bankruptcy but yes definately too extreme for me.

Oh and just to ask if I do go down the split route what effect would this have to my Life Insurance?


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## Sarenco (3 Jan 2015)

Fair play to you LRC and I hope my comments didn't cause any offence.  I would like to wish you the very best of luck - whatever you decide to do.


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## LRC (3 Jan 2015)

Not at all Sarenco, no offence taken.  All feedback received has been welcomed and has given me a greater insight into the pro's and con's of the split offer and possible (or not) other options out there. Thanks


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## Fin Crusader (3 Jan 2015)

I agree with the other contributors, you should take the split mortgage deal offered by PTSB however try to negotiate a higher warehoused portion of the loan, say 120,000 euro so that you can actually live. Tell the banks that if they accept it, it would be a long term sustainable solution for you and that in all probability the negative equity in your property will decrease over time. Make sure that if PTSB accept your offer they do not include any provision whereby, if the negative equity reduces significantly, they can revisit the warehoused part of the mortgage before the end of term of the mortgage.


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