End of interest only on investment apartment, can't currently afford repayments

Age: 37
Spouse’s/Partner's age: 37

Annual gross income from employment or profession: 65,000
Annual gross income of spouse: 78,000

Monthly take-home pay: ~7,400 (joint)

Type of employment: Multinational & Health Profession
Both working overtime where available (included in take home pay above).

In general are you spending more or saving: Just about breaking even

Rough estimate of value of home: 450,000
Amount outstanding on your mortgage: 600,000
What interest rate are you paying? KBC Tracker, so 1.25%
(Paying off capital).

Other borrowings – none.

Do you pay off your full credit card balance each month? Pay in full.

Savings and investments: 25,000 in AIB access account.

Do you have a pension scheme? No, neither.

Do you own any investment or other property? One apartment, City-center, rented.
Rent: 1,100
Value: 230,000
Amount outstanding on mortgage: 260,000
What interest rate are you paying? BankX Tracker, ~2.00%
(Interest only for 10 years has recently expired.)

Ages of children: 4 and 8
Both in childcare one full-time and one part-time @ 1,600 p/m.

Life insurance: No, neither.

Additional: Both of us have old cars, will need to be replaced at some stage and have no residual value.

What specific question do you have or what issues are of concern to you?
The 10 year interest-only period terminated on the apartment mortgage and the repayments are 1,600 p/m (from 450 p/m). We cannot afford this due to childcare and tax increases all around.
BankX have performed a review and have offered to drop the payment to 900 p/m, but to remove the tracker, increase the interest rate to 2.25%, so paying off capital of 300 p/m. After 5 years they would review.
Given that we don't have pensions, we want to retain the apartment as an investment to knock a chunk off the main mortgage.
We are considering declining bankX's offer and instead using our savings to help pay the full interest and capital from month to month. We would only do this until creche fees are reduced with the 4-year old going to school (au-pair instead of creche) in September, but money would still be very tight after that point.
What opinions would be offered on firstly dealing with the bank and secondly dipping into our limited savings to stay on the tracker?

What are the current capital and interest payments on your PPR?
Start a spending diary you would be amazed how much we all can waste. Au pair would be good saving. Would you consider getting one before September.

We're knocking off 1,600 off the capital and 600 interest p/m on the primary mortgage.
We may remove the kids in June once the holidays start, but still not sure about an au-pair (no transport) or in-house minder (extra cost to have one with a car).

Spending diary sounds good.

JimmyTwo said:

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BankX have performed a review and have offered to drop the payment to 900 p/m, but to remove the tracker, increase the interest rate to 2.25%, so paying off capital of 300 p/m. After 5 years they would review.

Click to expand...

No, no no to this.

Income 7400 less mortgage 2200 + creche 1600 = 3600. Bit issue if you're only just making it financially, there is a spending/lifestyle problem. Of which you undoubtable know the issue.

Life insurance is a problem, this is probably a mistake in your post, don't you have life insurance on at least the home?

No pension scheme is also a problem, you don't have a work related one?

The savings of 25K, how much do you save monthly?

Is the overtime worth it versus childcare costs. One is taxed at the highest and the second comes out of after tax income.

When the 4 year old goes to school, what will the cost be? To hire a woman to look after two kids aged 5 and an 8 year old, this cannot be a very large amount, it's not the same as a creche? You don't need a nanny or au pair, much better to hire a local woman who has kids or who had kids.

Investment property

Mortgage: 260K
Interest only: 5200
Rent: 13, 200

What have you been doing with the excess, even after costs and taxes there is extra?

Options:

1. Sell apartment, use the 25K for the NE, and borrow about 10K to get it over the line.

2. Keep it, use savings to pay off the tracker until you have the creche fees finished, problem here is will you do this?

3. Make full capital and interest payments which are €1600 a month with rent of €1100. And with income after creche and mortgage of €3,600 ?

4. Take the 2.25%, that's a lovely sweetner there, such bait. What bank is that, very clever. Amazed that it's fixed for 5 years, do you have this in writing?

You can be sure in 5 years you'll be on the top investment rate, and those ones are only going one way. If you were really struggling, which you are not, or only because you chose to be, then it might be an option, particularly because you have a) savings, b) really good incomes c) your negative equity (NE) is manageable, d) not allowed to talk about property prices, e) paying off some capital is also reducing the NE.

But if it were me, than I'd go for option 3 as it would force one into a realistic lifestyle and is a great way of savings, the capital payments are not a cost they are savings.

Your income is 8,500 per month
2 mortgages come to 3,800 per month (when the investment mortgage goes to full rate)
child care = 1,600

That leaves 3,100 for day to day spending per month.

Are those sums right? If yes, then I don't understand how there could be a problem here