# BoS offering to write off €16k arrears. What's the catch?



## Sammish (1 Dec 2010)

Hope someone can advise please. Background: 200k mortgage 7 years ago, all fine. 4 years ago I broke my back so husband had to give up work to look after our 2 SN children. Got into arrears (16K)but have been up to date for the last year. Had a phone call from the mortgage company(BOS) about 1 month ago. They said they saw we were doing well with repayments and that they might be able to help us "go back to 0.00" with the arrears. I couldnt get a straight answer from them as to where the arrears where going. They said it wouldnt be going on the term or on the monthly amount. I got a bit nervous at this as surely it has to go somewhere. They just said send back I&E form, 6 months statements and signed consent(I have no idea what the consent is for and cannot get any info) We are on a tracker mortgage and I dont want to mess about with it! Anyone have any idea what they are up to? Surely the aren't just "forgiving" these arrears? They wont give me any further info in writing and got very cross on the phone when I quizzed this. Many thanks in advance


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## Brendan Burgess (1 Dec 2010)

Hi Sammish

There is nothing underhand going on here. Of course, you should read the forms they send you, but they are not trying to get you off your tracker. 

This is a very difficult concept for people to understand. 

Let's say for simplicity, that your mortgage has a 0% interest, that you owe €100,000 and the repayments are €100 per month. 

If you make no payments, after 5 months, your mortgage balance  will still be €100,000.  But you will be €500 in arrears. 

The €500 arrears is just a notional figure. If they had given you a payment break, you would owe €100,000  but  no arrears. 

So by writing off the arrears, they are simply writing off a notional figure. They are not reducing the mortgage balance. Some (all?) lenders do this after a borrower shows that they have got back on track. 

Sometimes it's called "capitalization of arrears", but I think that is a misleading term.

It's difficult to explain and so the Bank of Scotland junior employee who called you probably found it difficult as well. She probably got frustrated as you were, rightly, suspicious.

Brendan


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## wbbs (1 Dec 2010)

Brendan, while I agree with your explanation of the arrears figure being a notional amount, the remaining balance if paid with the same repayments will naturally extend the original term surely?  If so then this should be explained by BoS to OP


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## tvman (1 Dec 2010)

Brendan Burgess said:


> Hi Sammish
> 
> There is nothing underhand going on here. Of course, you should read the forms they send you, but they are not trying to get you off your tracker.
> 
> ...




Brendan

"The €500 arrears is just a notional figure" That makes absolutely no sense unless the interest rate is zero. Clearly in this poster's case the interest rate is not zero so your example is misleading.

 Take a realistic situation:

30 year mortgage €300K, C & I @ 4% monthly payment: €1432. Interest portion of monthly payment: c. €1000

Assume the borrower makes no payments in year 1

At the end of year 1 the capital amount owed would be approximately €312K i.e. the unreduced principal amount plus the unpayed interest (this is called capitalising arrears).

You would then be paying interest on €312K

tvman


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## Sammish (2 Dec 2010)

To Brendan and Tyman, Many thanks for the replies. I recieved an I&E form, request for 6 months bank statements and a request for us to give our consent and for it to be signed. No other docs or info and couldnt explain what we would be consenting to in the signed consent. All that I was told was that the arrears wouldnt go on either term or amount. Accounting is not my strong suit but I also dont want to miss out on this if it is genuine. Are BOS doing me a FAVOUR?


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## Brendan Burgess (2 Dec 2010)

tvman




> "The €500 arrears is just a notional figure" That makes absolutely no sense unless the interest rate is zero.



Hi TV Man, as I said it's difficult to explain and very difficult for people to understand.  But the €500 is a notional figure whether the interest rate is zero or 10%. 

Let's take your example. 
Mary has not spoken in advance to his lender. At the end of the year his balance is €312k and his arrears would be around €17,000 (the total of the missed payments)

John agreed a full payment moratorium at the start of the year for a year. John owes the exact same balance at the end of the year - €312k .The only difference is that he does not have arrears and so is not under any pressure to pay. 

The arrears figure is entirely notional except in the following circumstances
1) If the lender charges additional interest on the arrears - I don't think any lender is doing this in Ireland at the moment. 
2) If the lender is seeking a repossession order - it will be based on the level of arrears.

It looks as if I should do a Key Post to explain all these issues.


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## Brendan Burgess (2 Dec 2010)

Sammish said:


> To Brendan and Tyman, Many thanks for the replies. I recieved an I&E form, request for 6 months bank statements and a request for us to give our consent and for it to be signed. No other docs or info and couldnt explain what we would be consenting to in the signed consent. All that I was told was that the arrears wouldnt go on either term or amount. Accounting is not my strong suit but I also dont want to miss out on this if it is genuine. Are BOS doing me a FAVOUR?



Hi Sammish

It is absolutely genuine. They are not reducing the balance on the loan. They are just going to collect the payments you have missed(the arrears) over the remaining term of the loan instead of in one lump now.

Feel free to reproduce the wording of the consent form on askaboutmoney. I pesume it does not contain a note "I am agreeing to switch from a cheap tracker to a Standard Variable Rate"?


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## Brendan Burgess (2 Dec 2010)

wbbs said:


> Brendan, while I agree with your explanation of the arrears figure being a notional amount, the remaining balance if paid with the same repayments will naturally extend the original term surely?  If so then this should be explained by BoS to OP



Hi wbbs, 

Maybe they should say something like the following:

you have a choice



> a)  Pay off the full €16,000 arrears now to make sure that you pay off your mortgage according to the original schedule
> 
> b) We will add the arrears to the balance of your mortgage and you can increase the monthly repayment so that you pay off your mortgage according to the original schedule
> 
> c) We will add the arrears to the balance of your mortgage and leave the monthly repayments the same. This means that you will be extending the term of your mortgage by 2 years.


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## wbbs (2 Dec 2010)

Exactly, either the payments or the term have to increase to repay the outstanding sum.


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## LDFerguson (2 Dec 2010)

It sounds to me that BOS have not given you sufficient information to make an informed decision and on that basis I wouldn't sign anything until it is explained to your satisfaction.

You say in your original post that "They said it wouldnt be going on the term or on the monthly amount."  I suspect that this must be misinformation, as otherwise they're writing off the arrears.    

If it was me, I'd write to them asking them to clarify _in writing_ to you the following points: - 

(1) What exactly do they propose to do with the arrears?

(2) Are they extending the original term of your loan?

(3) Are they amending your monthly repayment in order to repay the loan within its original term?

(4) If "No" to (2) and (3) are they volunteering to write off the arrears permanently with no possibility of seeking repayment at a later date?

(5) What will they be reporting to the ICB about this transaction?

(6) Will any of it affect your tracker variable rate agreement?


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## tvman (2 Dec 2010)

Brendan Burgess said:


> tvman
> 
> 
> 
> ...




I'm not getting you Brendan. Are you saying that the €12K in my example is a notional amount or are you saying that calling it arrears is in some way notional. If your saying the latter I won't quibble with you but if you're saying that the capital won't increase if you don't make interest payments I don't understand that argument. BOS appear to be willing to write off the original poster's accrued interest i.e. neither the term nor the monthly payment will increase - what they're writing off is a real debt not a notional one.

Advice to the OP - it appears that they are effectively doing you a favour, they're writing off some of your mortgage

tvman


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