Say during the boom a borrower borrows money for a property, to be repaid over 20 years, the first 2 years interest only. Lets say he has kept up interest only repayments to date, and has paid off "in a lump sum payment" a very substantial amount of capital, from the sale of other property. Lets say the capital is paid off "ahead of itself", to the extent that the same amount is paid off as would have been expected to be paid off by 2018 had the person made monthly capital repayments. The borrower is not making monthly capital repayments, just interest only. Is the person in arrears or not? The bank expects monthly capital repayments on the balance between now and 2018. Yet the capital that was originally envisaged to be repaid by 2018 has already been paid off.
(A) In this very unusual situation, whats the position....is the bank correct in saying the borrower is in arrears even though he is already very much "ahead of himself" overall on repayments?
(B) What impact should it have, if any, on the borrowers credit reputation / rating....should it be affected / damaged or not?
Thank you in advance of any replies.
(A) In this very unusual situation, whats the position....is the bank correct in saying the borrower is in arrears even though he is already very much "ahead of himself" overall on repayments?
(B) What impact should it have, if any, on the borrowers credit reputation / rating....should it be affected / damaged or not?
Thank you in advance of any replies.