# Ulster Bank  has offered me 5 years at 1%. Should I take it or go bankrupt?



## needtodo (9 Jul 2013)

Hi, I am in arrears on my mortgage (the mortgage is unsustainable - I owe just under 600,000k) and I have finished my third temporary arrangement with the bank. The current interest rate is 4.49%. The bank have offered a 5 year 1% interest arrangement - so I will pay 1,500pm which includes interest on the overall mortgage sum at 1%). Pluses are it gives me 5 years of a breather and who knows what will happen in that time. In addition I will be paying a couple of hundred off the capital sum over the 5 years. The alternative (to which we have given serious consideration) is insolvency or bankruptcy.
Can anyone see any difficulties with this offer? (other than in 5 years time I will probably still have an unsustainable mortgage).
Thank you


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## needtodo (10 Jul 2013)

Personal and income details
Employed €55,000 (private sector)
Net income partner/spouse: wife €35,000 employed (private sector)
Income history: both of us have had significant pay cuts over last 6 years
number of children 4
Amount of Mortgage Interest Supplement received: None
Home loan
Lender: UB
Amount outstanding: €593,288
Value of home: at best €360,000 (just got valuation back from auctioneer)
Interest rate: specify whether tracker or SVR or fixed rate: SVR
Monthly repayment 2,968.34 approx
Amount in arrears 18,000

Summary of discussions and agreements with the banke.g. in Marp since Jan 2011 . Have been on reduced payment since 2009. 

Other loans and creditors - delete those which don't apply to you
Overdraft - 4,000
Credit Card - 3,000
Credit Union e.g. €2,345 against shares of €1,822
Car loan e.g. 1,566 outstanding
Family none

Other savings and investments : none


How important is retaining the family home to you? Really important.
Which of the following best describes your situation?

I would like to keep it, but I need to be realistic. I am 45 years old now also and have 32 years remaining on the mortgage. 

What is your preferred realistic outcome? 
The mortgage is unsustainable. Of course I do not want to lose my home or have to go to the UK and uproot the children. The proposal gives us a life line and who knows what will happen in that intervening period. However, in 5 years time I still have a substantial financial burden and I am afraid that it will then be too difficult to go bankrupt because my eldest child will be doing their leaving cert and another the junior cert.


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## GDUFFY (10 Jul 2013)

I just don't see how you can't pay your mortgage on those wages,add children's allowance on top ?


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## GDUFFY (10 Jul 2013)

Even if you were paying full interest and capital on 594k at 4.49% over 32 years you would still have circa 51 k net to cover all other expenses in your families life , children's allowance is circa 6300 alone ,  Don't mean to be harsh, but am I missing something here ? What exactly are you struggling with ?


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## needtodo (10 Jul 2013)

Sorry I had included €530 received pm in child benefit under my wife's income. She works a 4 day week annual salary of €28,300. Despite those earnings we still have a shortfall every month. Our expenditure includes the normal expenses: house ins, esb, phone and broadband, food, clothes, life ins, childcare for two, gas, property tax, bin etc etc, the car is expensive insofar as the insurance is very high (2003) and maintenance and petrol due to commute. i cannot afford to buy a car with low road tax or a diesel car. it is as i have said and we cannot free up any more money to meet the full mortgage payment.


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## Brendan Burgess (10 Jul 2013)

Hi Calves

Let's look at your options 

1) Pay Ulster Bank €1,500 per month for 5 years
2) You and your wife apply for a Personal Insolvency Arrangement
3) You and your wife sell the home and apply for a Debt Settlement Arrangement 
4) You and your wife go bankrupt

*Option 1 - Ulster Bank deal 
*You will be paying  €18,000 a year, €12,000 of which will be capital.
At the end of 5 years, you will owe €540k
The house is worth €360k, so it would have to increase by 50% over 5 years to eliminate the negative equity. 

You get the use of a €360k house for the next 5 years for a cost of €1500 per month.

if you go for one of the other options, you will pay far more than €1,500 to rent an equivalent house or you will get a far smaller house for your €1,500. 

With an income of €90,000 you can easily afford €18,000 a year. 

*Option 2 - Personal Insolvency Arrangement Note that I have substantially rewritten this as the first version was very confusing. In fact, on reading it again,  I am not sure what I was proposing myself. 

*A   PIP would do the following calculation

1) You have an income of €7,500 per month
2) The RLE guidelines say that you can live on €2,500 per month before debt servicing.
3) That leaves you with €5,000 per month to pay towards your mortgage 
4) But a €600,000 mortgage costs only €3,000 a month over 32 years - 

your mortgage is fully sustainable and you won't qualify for a PIA.

*3) sell the home and apply for a Debt Settlement Arrangement *

You will have a mortgage shortfall of €240,000 


Monthly income|€7,500 
Monthly costs before rent|€2,500
Rent |€1,500
Available to pay towards shortfall|€3,500
Over 5 years|€210,000So you get a write off of €30,000 plus your unsecured creditors 


*Bankruptcy 
*I don't think you can go bankrupt, as you are well able to pay your (reduced) payments as they become due.  I think that the court would refuse you bankruptcy.  In any event, you would have to attempt a DSA first.

*Where will you be in 5 years' time if you take the UB deal 

*It will be something like the following
Mortgage: €540k 
House value? Say €300k to €600k ( No one knows) 
So you may still have big negative equity; 
Or you may have positive equity. 
But the most likely outcome is that you will still be in negative equity, but much reduced. 

If they extend the deal, at some stage the value of the house will match the reduced mortgage - it might be 5 years, it might be 7 years, it might be 10 years. 

The worst outcome for you would be that house prices fall and you would be in the same financial position as you are now. 

You might ask Ulster Bank to agree to the following amendment.  If you make the full repayments as per agreement for 5 years, that they will allow you to sell your house at the end of the 5 years and write off any shortfall.


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## needtodo (10 Jul 2013)

Thank you this analysis is very helpful


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## Brendan Burgess (10 Jul 2013)

How would this compare to a split mortgage? 

We don't really know as UB hasn't published their criteria for split mortgages. 
Of course, they are under no obigation to offer one either. 

But let's say that they went for a most generous split mortgage ...

Repay €360,000  at 4.5% over 32 years ( up to age 75) 
Warehouse €240,000 at 0% interest rate. 

The repayments would be €1,770 per month.

The annual interest would be 
 €16,200   (360,000 @ 4.5%)
compared to 
€6,000 (600,000 @1%) 

This is far superior to, even the most generous split mortgage. 

Brendan


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## arknine (12 Jul 2013)

In 5 years time if the NE is significantly reduced - then UB might move to exit the loan and not extended any further restructures as the balance outstanding will be unsustainable at that stage. 

What will you do with the balance outstanding in 5, 7 or 10 years time?


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## Brendan Burgess (12 Jul 2013)

Hi arknine

For simplicity, let's assume that the value of the property increases by 50% over the next 5 years which is enough to eliminate the negative equity. 

Calves will owe €540k. Let's assume  he can't pay the normal interest of €30k per annum on this.

Then he sells the house and rents elsewhere. 
But he will be solvent. 
He will have got an extra 5 years in his family home
He will have got this extra 5 years for "only" €1,500 a month, much less than it would cost him to rent an equivalent property elswhere.

That is better than losing his home now and facing into one of the insolvency regimes. 

And of course, good things could happen
His family income might improve 
He might get a lump-sum from somewhere 
House prices might recover by more than 50%. 
Ulster Bank might extend the deal 

Brendan


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## Brendan Burgess (12 Jul 2013)

I have rewritten my initial response to this post.

The conclusion is the same, but it was very badly written and very confusing.


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## Green (12 Jul 2013)

Brendan Burgess said:


> Hi arknine
> 
> For simplicity, let's assume that the value of the property increases by 50% over the next 5 years which is enough to eliminate the negative equity.



This scenario assumes something which has not happened in the 34 property bubbles which have happened worldwide whereby property prices return to their mean level and stay there. Was it Japan where prices fell for 20 years in a row?


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## Brendan Burgess (12 Jul 2013)

Hi Yobr

We don't speculate about prices on askaboutmoney.  It was a simplifying assumption to deal with arknine's specific question



> What will you do with the balance outstanding in 5, 7 or 10 years time?



The earlier more comprehensive response set out the range of outcomes and even then a big disclaimer 



> House value? Say €300k to €600k ( No one knows)


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## needtodo (12 Jul 2013)

Many thanks to all for the posts which have been very interesting. 
Brendan - One issue I would like to address however is the figure you are using in your analysis. The gross monthly income is approx 7,500 as you said. But is it not the net figure you should be using? Each month after tax and compulsory pension deductions our net monthly income is closer to 4, 850 (this includes child benefit and my wife's salary) - in excess of 50k per year net. Is that not the figure that should be used as opposed to the gross figure?
On a separate note (unrelated to this thread but in relation to GDuffy's post above  - why are we struggling to pay our debts?) - after the full mortgage is deducted I have circa 1,890 remaining. Petrol (400 pm), childcare (circa 900), property tax, phone, esb, mortgage assurance, car tax and insurance and house insurance is 1,720 alone - that leaves 170 pm - and I have not even mentioned food, clothes, bin charges, heating, car maintenance, loan repayments, medical etc. As I said we got rid of sky, cancelled medical health insurance, sold second car etc dont go out, or have any disposable income. Our expenses pm the bank agree are not excessive to our situation -i.e. unavoidable high commute costs and childcare - but we are actively trying to find work closer to home). We dont come near paying the full mortgage amount. The bank accept that after bills for a family of 6 and our remaining loan and credit card repayments (we are paying an agreed minimum amount pm) we have only 1,500 remaining to pay the mortgage. So am I missing something??? By that I mean - I presume everyone is paying the compulsory payments i.e. taxes and insurance - so the only things we can save on like everyone else is food, heating, clothes etc - I have looked at our expenditure time and time again - is there something I am missing?


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## Brendan Burgess (12 Jul 2013)

Hi calves

This is what the standard case study format says



> Net (i.e. after tax) Income self:                  nature of income e.g. self-employed/public servant etc
> Income history: e.g. "I was made redundant in June 2011 and have not had any work since..."
> Net income partner/spouse:                   nature of income


This is what you said in your post



> Employed €55,000 (private sector)
> Net income partner/spouse: wife €35,000 employed (private sector)


I had assumed it was net income. Of course it is net income you should be using. 

You will have to redo the figures based on this. I suspect that it will still be preferable to a PIA, but you will have to run the numbers.

Brendan


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## needtodo (12 Jul 2013)

I apologise Brendan - I didnt see that. Many thanks.


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## cremeegg (14 Jul 2013)

The OP has €4,531.66 a month after paying for his accommodation and a couple with 4 children cant live on it.


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## Luternau (14 Jul 2013)

In my view, this is a great deal for you. You have goood income into the household, but the current full mortgage repayments are killing you (some 65% of disposable income).  under this deal, it falls to 33%. 

However, you should still continue to keep a tight rein on spending, pay off the other loans and build up a nest egg. Hopefullly in 5yrs things will be somewhat better for you - and everyone else!

One thing that I find odd (with your loan) is that you are 45 ,and have 32yrs left on the mortgage-meaning you will be 77 when its cleared. I thought the banks would not go beyond 68-but 77 for the principle earner in a family is really stretching the numbers!


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## oldnick (14 Jul 2013)

I have  an AIB tracker commercial  loan  which means final payment won't be till I'm 72.

(I think 6-10 years ago banks would almost give loans to terminal 80 year olds or 18 year olds on the dole or anyone who walked past the door !)

As regard this thread - for someone netting nearly 60.000 euros a year to only pay 1.500 a month for the next five years for a fine spacious residence is a dream for most people.


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## Brendan Burgess (14 Jul 2013)

Hi Calves

I have closed the thread.

It's a very important issue as it's important to compare the alternatives 
1% interest loan
Personal Insolvency Arrangement
Surrender of the home.

Could you start a new thread with the correct figures  - separating out your net incomes and your child benefits. 

Brendan


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