# Split mortgage offer from KBC



## Bronte (19 May 2014)

This thread is to decide which of the two options from KBC bank are better. There is a guarantor involved, the borrower is not forthcoming on all information, hence the lack of full details. 

*Income details*
*Net monthly *don't know the figure
Amount of child benefit received 260

*Personal circumstances so we can calculate your reasonable living expenses *
One adult family 
Do you need a car for work ? Yes (a lot of mileage)
Number of 4 - 11 years old: One
Number of 12 - 18 years old: One
Monthly childcare costs: not sure

*Home loan*
Lender: KBC
Amount outstanding: 214,000
Value of home: 100,000
Interest rate: specify whether tracker or SVR or fixed rate
Monthly repayment: believe it's about 650 Euro on interest only, probably for quite a few years 
Amount in arrears: don't think there is any

*Credit Union *

Debt written off

*Other loans and creditors *: 
Credit Card - believe this is also written off
Family loan - 12K
Family loan repayments - 100 Euro monthly

*Do you expect any lump sums in the medium term future? *
About 5 k in a year, probably will have to be used to replace car as it's very old

*How important is retaining the family home to you? *

No idea the answer to this

*KBC split mortgage offer*

Option 1 - Split mortgage 60/40

So round 130K at 4.5% interest, monthly repayments around €650

Leaving around 85K parked for the remaining 35 years.

Option 2 - Interest rate fixed @ .5% for 5 years

Banker says around € 820 to € 850 per month

____________________________________

Questions

Which of those two options are better

Which is better for the guarantor versus the borrower

Borrower can afford the Split at €650 as that is close to the current repayment. Problem would be if interest rates go up. Option 2 is very expensive, to the borrower. € 650 Euro would seem a reasonable amount to repay to be purchasing a home. Rent might be in the region of € 500. Meaning if borrower defaulted the guarantor could make up the difference between €650 mortgage and €500 rent. 

Guarantor has to provide salary slips and and fill out a financial summary. I've advised that this should be not much higher than the level of income allowed by the insolvency service in case the bank wants the guarantor to subsidise the mortgage. Find it odd the bank is not calling in the loan, they have never ever hinted they might do so.

Any danger to the guarnator in filling out the details. 

__________________________

The bank has to come up with a proposal and the Central bank has to approve it.


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## Brendan Burgess (19 May 2014)

Hi Bronte

A very interesting question.  You would need to see the terms of the split mortgage to assess it. Has this person been in to see the IMHO? They have a deal with KBC to provide advice free of charge. IMHO would know the details of the KBC split. 



> *KBC split mortgage offer*
> 
> Option 1 - Split mortgage 60/40
> 
> ...



With option 1,they will be paying 4.5% on €130k which is €5,850 per year. 

With option 2, they will be paying 0.5% on €214k or €1,000 a year. 

So for the first 5 years, Option 2 is way better,saving almost €5,000 a year.  

As their repayments will also be higher, after 5 years, they will have a much lower balance outstanding, so the guarantor should strongly prefer this option. In rough terms, they will have paid off around €35k more with Option 2. 

Interest rates could rise under Option 1, so again, this makes a fixed rate of 0.5% much more favourable. 

*Option 1 might be better if the €85k is parked at 0% for 35 years without review. 

*I assume that there is a review.  Only AIB does not have a review. If you find out that there is no review, let us know and we can crunch the numbers.


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## Brendan Burgess (19 May 2014)

> Guarantor has to provide salary slips and and fill out a financial  summary. I've advised that this should be not much higher than the level  of income allowed by the insolvency service in case the bank wants the  guarantor to subsidise the mortgage. Find it odd the bank is not calling  in the loan, they have never ever hinted they might do so.
> 
> Any danger to the guarnator in filling out the details.



Not sure what you mean about the the level of income should not be much higher. He should fill in the form in good faith and give his full income and full assets and liabilities. 

The fact that they have not mentioned calling in the guarantee does not mean that they won't do so. 

Banks are slow to call in guarantees, but they will do so if they need to. KBC would probably prefer to sort it out in a friendly manner by giving the split or the reduced interest rate.


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## Bronte (20 May 2014)

Guarantor perfers Option 2 for the reason you stated, that it's cheap and more capital will be paid off. And is willing to subsidise the borrower for the difference that they cannot afford. This is going on for too many years now. 

A few years ago the guarantor who was unemployed wanted the borrower to default and hand back the keys. This would have broken the never ending financial link between them, and it's looking to be a lifetime financial link now, or at least until there is no NE.  The remaining term being so stretched means way over retirement age.  

I think there is a problem with Option 1 if interest rates rise. I wonder can that be negotiated to be fixed. I'll find out about the review. What else to look out for.


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## Brendan Burgess (20 May 2014)

> A few years ago the guarantor who was unemployed wanted the borrower to  default and hand back the keys. This would have broken the never ending  financial link between them,



Why would that have broken the link?   The bank would pursue both the borrower and the guarantor.  Unless the guarantor had planned to go bankrupt? 

The guarantor is being reasonable/generous in paying the extra bit.  The borrower will see an end to negative equity in a few years and will be even more motivated to keep up repayments.  The guarantor should probably put whatever they are agreeing to in writing. If the guarantor is paying €2,000 a year off his friend's loan, then he should regard that as a loan to be repaid. 

Brendan


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## Bronte (20 May 2014)

Brendan Burgess said:


> Why would that have broken the link? The bank would pursue both the borrower and the guarantor. Unless the guarantor had planned to go bankrupt?


 
Because it's very complicated.  And sometimes you have nothing else left to lose.  

Guarantor owns an investment property that's in massive NE. But the family home with spouse is owned by spouse even though Guarantor is now paying off that mortgage which is near an end, but has no ownership rights. 

If KBC had pursued borrower they would have got nothing as borrower at that time had much more debt and while most of that is now written off they have no assets and a family with a job that will not give much above costs of living. 

Guarantor has been living with the spectre of all this for years with no real engagment by borrower and no end in sight. So had figured out the KBC could come after them and take what exactly? Go after earnings maybe, but as he is paying mortgage and supporting his own family (one income) what exactly could KBC get.

At one stage he had to sign every six months that he knew/agreed borrower was only paying interest only, that went on for a few years. It's only now the bank are contacting and dealing directly with the guarantor. 

I have gone with your suggestion and recommended a go with the IMHO, at least it is free and might get some ideas.


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## Brendan Burgess (20 May 2014)

Hi Bronte

Selling the home would not break any link here for the guarantor. 

The guarantor could go bankrupt if they have no assets and are insolvent.  As far as I know, that would void the guarantee. 

Brendan


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