Case study AIB has offered me a split mortgage - I am in positive equity

B

Bell

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Personal and income details: 1868
Income history:[/B] Unemployed since 2009, currently retraining.
Spouse Income: Nil, hoping to retrain in September.
Kids: 2
Lender: AIB
Mortgage interest Supp: 396
Amount outstanding:189,500 Value of home: Hoping 210,000 [Update April 2014 - Valued at €160k -]
Interest Rate: Variable
Monthly Repayment: 696 Interest only
Arrears: None

Summary of discussions with bank:

Interest only since 2010, finished this month June 2013, SFS complete and long term solution is split mortgage or voluntary surrender, a trial of a 6 month period to start this month, but no guarantee we will be given split at the end of 6 months!!

Terms of split: Pay interest and capital on 140,00 which will be 860e and warehouse 49,500 at 1%, I think it was 1%, will have to double check that!

Other loans: Credit union loans of 13,353, we have been told by bank that this is not our priority and to talk to the credit union, no arrears on this.

Savings: None

Preferred outcome: Not sure anymore, was really hoping for a split mortgage, just until we both get back on our feet and gain employment, but now not so sure, thinking strongly of selling up, (only if we get value or above to clear the mortgage) and renting forever, no stress or worries then!
 
Hi Bell

Grab this with both hands. This is an extraordinary offer.

But you seem to have some doubts? What are they?

AIB don't charge interest on the split.

So the cost of your accommodation will be €140,000 @4.5% or €500 per month in interest. The additional €360 will go to reducing the capital outstanding.

As you are in positive equity, this is real saving.

Do you think you could rent a similar house for less than €500 a month?

It's going to be tough coming up with the €860 a month, but you have to really try so that you can avail of this great offer.

And the MIS will cover most of the interest element.

I am not sure what the implications are for MIS. You are not supposed to be repaying capital while on MIS.
 
Brendan, We are thinking we are in positive equity, we are going to have a valuation done to see, my doubts are, are we going to kill ourselves for the nxt 21years trying to pay this mortgage and have no quality of life, should we sell up and rent and not have to pay property tax, house insurance and water rates!! Was not aware that you are not supposed to be paying capital while receiving mis, great another obstacle so, what do you think will happen there?
 
Also Brendan, what if interest rates increase again will it affect our agreement?
 
It might be a good deal financially but its not good enough if you have to live in misery for years to come.

I think you should start with the reasonable living guidelines as published by the ISI. Whatever is remaining from your income after reasonable living expenses are deducted should be offered to the bank. I believe a monthly repayment of 500/600 is more appropriate in your case.

What the bank has offered here is NOT a sustainable long term solution.

The split mortgage option is the correct one except that the warehoused portion needs to be greater in this case.
 
Hi Bell

are we going to kill ourselves for the nxt 21years trying to pay this mortgage and have no quality of life
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If you sell your house, you will pay far more for renting something similar. That is the key point.

You and your wife are retraining, so hopefully you will have a higher income at some stage in the future.
not have to pay property tax, house insurance and water rates!!
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But you pay these indirectly anyway through higher rent. I suspect that water rates will be paid by the tenant and not the landlord.
 
Dr.Debt said:
IWhatever is remaining from your income after reasonable living expenses are deducted should be offered to the bank. I believe a monthly repayment of 500/600 is more appropriate in your case.

What the bank has offered here is NOT a sustainable long term solution.

The split mortgage option is the correct one except that the warehoused portion needs to be greater in this case.
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Dr Debt. A balance must be struck.

AIB is offering Bell a long-term interest free loan of €50,000.

If I was AIB, I would be telling them that the mortgage was unsustainable and that they should sell the house.

AIB will recover its loan in full.
 
Thank you both for your input, we are going to take the current offer from AIB and see how we manage, as you have pointed out Brendan things will hopefully get better when we are both retrained and hopefully gain employment, we can only do our best to be positive and hope for the best.
 
Hi Brendan, You're right, its all about balance but more importantly its all about long term sustainability

As you know the banks are under extensive pressure now to produce longterm sustainable solutions for their loan arrears books. This is well overdue however it appears that things are moving quite quickly now in that direction with lots of people being offered split mortgages in the past few weeks.

The problem is that the banks are not going far enough. I've seen enough examples now to form an opinion that the banks are not adhering to the reasonable living guidelines as laid out by the ISI. On average they seem to be trying to recoup a further 300 euro per month from the average family of four. I know its a generalisation but thats the level that I've witnessed.

Personally,I don't think there's any point for the bank to push too hard on these split mortgages as inevitably all these arrangements will start to unravel again before too long and then we're back to square one which is completely pointless and damaging.

I would urge the banks to adopt the reasonable living expenses guidelines more seriously (as a minimum) and to engage seriously in trying to secure a sustainable workout that will last the test of time.

Can a family of four really afford to live on 1000 euros per month ? Why are the banks pushing for this ? Its not going to work ,over an extended period of time

If we decide to be cynical, we might say that the banks are pushing hard to meet the long term sustainability targets on "paper" only and that they're still playing for time. All arrangements seem to have six month "review periods" or "trial periods" which might suggest an extension of previous policy to continue kicking the proverbial can further down the road.

I would urge all recipients of split loan offers to seek good advice before signing up to anything. A PIA may be a better approach if the bank is not coming up to the mark
 
Hi Dr Debt

The bank is offering a choice - sell the house or go for this split mortgage.

Selling the house is also a sustainable solution according to the Central Bank.

This all boils down to people who have dismissed interest only as a sustainable solution.

If I was the bank, I would offer Bell the following - interest only until their income improves. €190k@4.5% = €700 per month.

I wouldn't require him to pay any capital.

Actually, come to think of it, Bell can ask for the Deferred Interest Scheme. If he pays €455 per month, then they will defer the balance for up to 5 years.

Bell - I think you should ask for the Deferred Interest Scheme instead. You will be charged more interest, but your outgoings will be lower.
 
A PIA may be a better approach if the bank is not coming up to the mark
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What would a PIA look like in this situation? The house is worth more than the mortgage so it can be sold and the borrower is no longer insolvent.

The mortgage cannot be reduced to less than the value of the property - €210k.

If a PIP came up with some other scheme e.g. to write off some of the mortgage, the lender would simply write it off. The PIP would get a fee at the expense of Bell. Bell would be worse off.
 
Bell said:
Brendan, We are thinking we are in positive equity, we are going to have a valuation done to see, my doubts are, are we going to kill ourselves for the nxt 21years trying to pay this mortgage and have no quality of life, should we sell up and rent and not have to pay property tax, house insurance and water rates!! Was not aware that you are not supposed to be paying capital while receiving mis, great another obstacle so, what do you think will happen there?
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Well if it was me I'd flogged if I could and clear off the loan. Any rent you are going to pay is going to include insurance etc so you are not going to avoid that, but you are going to be a lot more flexible in terms of renting something within your means and in terms of finding work - you can seek work anywhere in the country and not just in your location.
 
Well here we are 7 months down the road, we managed to pay the 860e for the last 6 months and our new sfs is gone in, nothing has changed in the financial dept except I have re-negotiated one of the loans of the credit union and freed up an extra 104e to put towards the 860e for the mortgage. I am surprised that we have managed well enough, don't get me wrong there have been tough months, but we have done it. So now we are waiting patiently to hear from AIB about what happens nxt, they have told me it will be 6 wks!!!....will we be offered the split now?? We received a letter in January saying that our mortgage was back to interest and capital 1172e and we managed to pay that in January. We had a few extra pound that we got for xmas from family. But don't think we will manage that payment in february, now we have never not paid what they have asked. However I rang them last wk and told them I didn't think we would meet that payment and she said that we are not in an agreement at the moment and to pay as much as we can....I was thinking of paying the previously agreed sum of 860e...what do you think would be the implications of this? Should I try and borrow the excess of family and pay the rest?
 
Also I should be in a position to gain employment in July and my husband will be finished re-training by the end of this year so we are on the right track, just need to get there!
 
Hi Bell

Go straight into the Irish Mortgage Holders Organisation who have a unit which deals directly with AIB. They will be able to help you to get the best achievable deal.

Brendan
 
Tks Brendan, have just logged on and sent them a message. What in your opinion do you think we will be offered?
 
I presume you will be offered what you were offered 6 months ago, as long as you can show that you can meet the repayments.

If you are not able to show that you can meet the repayments, they will tell you that your mortgage is unsustainable and that you will have to sell it.

Brendan
 
Well we have met the repayments and can do so going foward so fingers crossed that is what we will be offered....tks Brendan I lurk on here a lot and you do a great job...fair play to you.
 
Well here I am again....we have got our offer of a split from AIB the terms are a little different than I had thought they would be:

We owe 186,000 with 240 months left to pay, payment should be 1172 4.4% svr

The offer:
base loan 167,000 for 342 months payment 857 interest rate 4.4% svr
Split amount 19,000 warehoused at 0%

Waiting to go and see a financial planner for some advice, views welcome
 
Bell

That is very interesting and I had forgotten about this thread.

I am surprised that AIB or any bank is offering split mortgages on homes in positive equity. This is the only case I have come across.

Obviously, warehousing €19,000 is not as attractive as the original warehousing of €49,500.

Still, this will save you around €70 a month. (€19,000 @ 4.5% /12).

While the terms and conditions of the new split are much more generous, they are not much good if they are warehousing only €19,000.

The key principle is the same - this is much cheaper than renting an equivalent house
This may be tough for you to meet, but it will be even tougher to pay rent. It's much cheaper to rent money than to rent property.

Ask for your initial split back
You quoted very specific figures in your original post. Where did you get them. I think you should ring your contact in AIB and say that you think that there is some mistake. Why have they changed the figures.

If they don't budge, appeal their decision and you might be given the original split terms.
 
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