On MARP interest only for c. 2 years - where to from here?

[ClubMan]

On behalf of a friend. I don't think that this is as extreme a case as some others posted here and the aspirations outlined below may seem unrealistic but all comments/advice welcome. If any further info/clarification is needed just ask. Thanks.

Personal and income details

• Income self:
  • gross salary: €3,100
  • salary net of tax, USC, PRSI, mandatory pension/superannuation deductions: €2,400
  • other income (child benefit, child maintenance, mortgage TRS treated as an "income"): €800
  • total net income: €3,200
• Income history: permanent and pensionable on a public service contract, now on certified serious illness sick leave on full pay for 6 months, half pay for 6 months thereafter if applicable and pension rate thereafter if applicable
• Income partner/spouse: N/A
• number of children: 1 (aged 8)
• Amount of Mortgage Interest Supplement received: N/A

Other info: over past two years a lot of work has been done on restructuring the person's personal finances. E.g. reducing/clearing unsecured debts (e.g. credit card balance was €7,000 but now cleared; Credit Union loan restructured; current account overdraft rarely used now etc.) and reducing household expenditure (e.g. private health insurance dropped, better deals on all utilities etc.). However SFS still shows that at the end of the month the balance is breakeven or slightly negative even on interest only mortgage repayments. Also the individual often needs assistance/reminders not to let the finances get out of control again...

Home loan

• Lender:BoI
• Amount outstanding:€222,000
• Value of home: €180,000?
• Interest rate: 4.25% standard variable rate
• Monthly repayment: capital + interest €1,300, interest only €790
• Amount in arrears: €1K

Summary of discussions and agreements with the bank: on interest 6 months at a time under MARP for past 18-24 months. Current repayment is interest only of €790 + €100 towards small arrears balance = €890. TRS is c. €170 so net repayment is c. €720.

Other loans and creditors

• Credit Union: loan for home repairs of €4,000 @ 8.69% (variable?) secured against shares of €1,000 with repayments of €90 p.m. over a remaining term of 3 years (?) (recently restructured from €6,000 secured on €3,000 with repayments of €230 p.m.). I think that these figures are correct!

Other savings and investments

• €3,000 child education fund/home improvements fund and firm resistance to using this for other purposes such as clearing CU loan.

How important is retaining the family home to you?

• Keeping family home is very important.

Any other relevant information

• Main problem seems to be the feeling of being stuck in a rut/limbo with regard to the mortgage - i.e. "just" paying interest, not paying down capital, kicking the capital issue down the road so feeling insecure with regard to what happens further down the line. Also the inability to improve structural and cosmetic aspects of the property due to lack of finances.

What is your preferred realistic outcome?

• Not sure how realistic but ideal would be to be able to pay down at least some of the capital and be able to address some home improvements (some structural, some cosmetic).

 

[44brendan]

Not sure how realistic but ideal would be to be able to pay down at least some of the capital and be able to address some home improvements (some structural, some cosmetic).

It goes without saying that the objectives must be fitted into the capacity to meet them. I'm assuming the following; - Single adult - 1 car (no car loan).
Living expenses per standard comparison would be circa 1,500 pm. This excludes any child care costs. With monthly loan payments of 810 currently he/she has 2,200 net available to meet living expenses. You state SFS expenses account for virtually all of this (childcare??). So while he/she wants to make some input to loan reductions, there is no capacity to do this unless CU loan is cleared off. Child is currently 8 so there is no urgent rationale to maintain 3K of much needsed funds to cover future educational expenses. However, if this is a deal-breaker, so be it. Unless this attitude is changed there is no capacity evident to meet any capital reductions on the loan. In my view if he/she can maintain interest payments for the medium term there is unlikley to be a threat of foreclosure. However, who knows how Bank attitudes may change over the next year or so.

 

[ClubMan]

Thanks for the feedback on this.

I'm assuming the following; - Single adult - 1 car (no car loan).

Correct.

Living expenses per standard comparison would be circa 1,500 pm. This excludes any child care costs. With monthly loan payments of 810 currently he/she has 2,200 net available to meet living expenses. You state SFS expenses account for virtually all of this (childcare??).

Yes - SFS takes account of everything (including childcare costs) in detail and pretty accurately at this stage as it has been refined over the two years. There are some other unavoidable outgoings which are inflating the monthly living expenses but I cannot go into detail for privacy reasons.

So while he/she wants to make some input to loan reductions, there is no capacity to do this unless CU loan is cleared off. Child is currently 8 so there is no urgent rationale to maintain 3K of much needsed funds to cover future educational expenses. However, if this is a deal-breaker, so be it.

That's the de facto situation alright.

Unless this attitude is changed there is no capacity evident to meet any capital reductions on the loan. In my view if he/she can maintain interest payments for the medium term there is unlikley to be a threat of foreclosure. However, who knows how Bank attitudes may change over the next year or so.

Ok - thanks for the feedback. Just wanted to see if I was missing anything...

 

[Bronte]

all comments/advice welcome.

Salary

If salary is going to be reduced to half what is the plan then? If it's going to be a pension is it much less than current net?

Savings

Don't see the logic of not paying off the CU with the 3K savings. Would gain an extra 90 Euro a month.

Overdraft

Need to try and wean themselves off dipping into this. Suggest a slow reducing of overdraft amount

Reminders

Only way to stop a person going back into the spiral of debt is to organise the finances so that this cannot happen. That once salary goes in all bills go out and that person can only withdraw/use what's remaining, perhaps by having a weekly amount, say every Friday.

This person is lucky to have you Clubman, it's a thankless task but you're being a good friend. I cannot see how you can squeeze more out of the salary if it's not there. Perhaps another look at groceries and utilities, but knowing you I doubt there's anything there.

Structural repairs/improvements

Cannot see how this is realistic based on what you've posted. How much would this cost and what is it. Any chance of family help on the structural. Cosmetic will have to be lived with as it is not affordable and is not a necessity. It's tough, but you mentioned this person has managed to get down a lot of debt and they've nearly got their finances under control. Sometimes the constant pain of struggling can be disheartening. Need to be positive and point out how well they've done so far. NE is not so bad etc.

Just an idea on the cosmetic. Any chance the person could do it themselves, or a friend/family. There are lots of things people can do for themselves that they think they need a tradesman for. What exactly is the cosmetic. Even doing cosmetic can cheer a person up.

 

[ClubMan]

Thanks Bronte. All good points. Unfortunately I cannot convince them to use the savings to reduce debt. And ultimately it's their decision obviously. There may still be some scope for reducing household expenditure but it'll be marginal at this stage. There is no specific plan for the half pay scenario as the diagnosis is only recent and hopefully it won't come to having to use that.

Thanks for the compliment - and I know that this person appreciates my help and advice even if they might not heed all of it!

 

[Bronte]

Thanks for the compliment - and I know that this person appreciates my help and advice even if they might not heed all of it!

Bit like I feel on AAM sometimes and especially the posters in the last week. It's been particularly crazy. And don't get me started on my own family celtic tiger cubs. Plus the riduculous reasons I've heard from people who are not paying the household charge on points of principal. I heard 3 such stories on Joe Duffy 2 weeks ago and I nearly threw the radio out the window.

I don't think you're going to get any more advice on this person's situation as there is no more to cut. They will just have to continue doing their best.

 

[Brendan Burgess]

Hi ClubMan

I think that you have a full understanding of the issues yourself and contributors here have very little extra to offer.

Two small points

The arrears on her mortgage will be very bad for her. I know they are not listening to you, but you have to tell her again that clearing the arrears is more important than having savings. She seems to have a good relationshipw with her CU, so she should be able to borrow from them in the future if she needs the money.

Main problem seems to be the feeling of being stuck in a rut/limbo with regard to the mortgage - i.e. "just" paying interest, not paying down capital, kicking the capital issue down the road so feeling insecure with regard to what happens further down the line.

There are 500,000 households renting in Ireland. They are "just" paying the rent on their home. They don't seem to have the same worry as thos who can pay only the interest on their mortgage. She has a stake in the property market. If prices fall, her negative equity increases which doesn't affect her in any practical sense. If prices rise 25%, it will eliminate the negative equity and she will be getting a potential return on the "investment" in her house. Over time, inflation should make the interest-only repayments a lower proportion of her income.

 

[ClubMan]

Thanks.

The arrears are probably only about €1K and arose due to a delay (on the borrower's not lender's part) in renewing the interst only period. What happened was that the mortgage reverted to capital + interest for a month or two so there was probably one month's capital + interest or two month's interest only missed. Is this really "very bad" in the greater scheme of things? Regardless of the fact that the arrears could be cleared from savings - and while I have suggested this I know that it's not going to happen for better or worse...

The CU have recently restructured the loan by allowing shares to be offset and monthly repayments to be reduced. A condition of this (probably standard CU practice?) is that no further loans can be made until this one is paid off.

 

[Brendan Burgess]

There was probably one month's capital + interest or two month's interest only missed. Is this really "very bad" in the greater scheme of things?

It's not that bad, but it will appear on her ICB record.

If the CU checks ICB records, which only some do, it would be better to have any blots cleaned as quickly as possible.