Key Post "I am worried about dealing with the warehouse on my split mortgage."

Brendan Burgess

Brendan Burgess

Founder
Messages
53,725
If you have a split mortgage and your financial circumstances have improved so much that you are thinking of trading up, then you should consider getting rid of the warehouse so that your credit record improves. I have dealt with this scenario here:

Key Post - If you have a split mortgage which you no longer need...

I posted this thread in relation to borrowers with ptsb split mortgages who might not want their loans sold to a vulture fund. If you have a ptsb split mortgage, which you no longer need... But the same principles apply to borrowers with split mortgages from other lenders. If you have a...
www.askaboutmoney.com

This thread is for people who have no plans to trade up but who are worried about what will happen when the mortgage term ends - usually at age 70 - and the warehouse will be hanging over them.

1) Your first priority is to build up some savings to give you flexibility - that could be €2,000 to €5,000 depending on how secure your job is and what your financial needs are.

2) Do not try to make overpayments against the warehouse.

3) Do not ask the lender to switch some money from the warehouse to the active mortgage
 
Last edited:
If you can't make overpayments, what will happen to the warehouse when the mortgage term is up in 20 years?

A warehoused amount of € 50,000 might seem like a lot today. If you can just about manage to pay your active mortgage, how will you be able to pay the €50,000 when you are 70.

Don't worry too much about it. If you do have spare cash, set it against the active mortgage so that it will be cleared early and you can then redirect the current monthly repayments towards the warehouse.

Your earnings will probably increase over the next 20 years, and repayments on €50,000 will be relatively small.
 
Last edited:
If you can make overpayments, make them against the active mortgage.

This is really important. A split mortgage is really two separate loans. One on which you are charged interest and the other where there is no interest. It is always right to pay off the loan with the higher interest rate first as that will save you interest in future.

Let's take an example

Aged 50
Remaining term on the mortgage: 20 years
Active mortgage €100,000 @3% interest - repayment €550 per month
Warehouse €50,000 @ 0% interest and no repayments.


You have the capacity to pay an additional € 300 a month.

1) Increase the repayments on your active mortgage to €850 per month
2) You will clear the active portion of the mortgage in 12 years.
3) You can then start working on the warehouse.
If you continue to pay €850 per month and the bank still does not charge interest on the warehouse, you will have
the warehouse cleared in 5 years.
So you will be mortgage-free after 17 years in total.

4) There is a risk that if the bank sees that you can pay more, they might move some money from the warehouse to the active part. So instead of increasing your repayments to €850 per month, maybe save the €300 into another account and every so often pay off a lump-sum of maybe €2,000 or €3,000. You do save more by paying the money in earlier, but it's not that significant.

If you have an AIB split mortgage, you can get a discount for clearing the warehouse, so that makes more sense than paying down the active part.
https://www.askaboutmoney.com/threa...ouse-on-my-split-mortgage.227127/post-1768399

If it's over 10 years since you got the AIB split, the discount is no longer available, so pay off the active part of the mortgage.
 
Last edited:
"But if I increase my repayments on the active mortgage, won't the lender try to move some of the warehouse to the active mortgage?"

It seems reasonable that if you can afford an extra €300 a month, the lender would review your finances and move some of the warehouse to the active mortgage. So you would end up paying interest on some of the loan which was previously interest-free.

However, in practice, it seems that the lenders are not aggressively reviewing split mortgages. You may get a call from them every three years but this seems to be just a token call. In fact, the lenders seem to be encouraging people to do what is best for the customer and to set any repayments against the active mortgage first.

The last thing that any lender wants is to see a "cured" mortgage going into arrears again. In their own accounts, they have made full provisions for the warehoused portion so they are not under pressure to move it into the active account.

If your mortgage is now owned by a vulture fund, then they may take a different attitude. But, so far, the vulture funds seem to be happy with the active mortgage being prioritised ahead of the warehouse. I am aware of a case where a borrower tried to pay a lump-sum off the warehouse, and Pepper told them they would be better off paying it against the interest-bearing active loan.
 
Last edited:
If you have an AIB split mortgage...

The AIB mortgage agreement contained the following conditions:

1) If you pay a lump-sum off your warehouse within 5 years of the split being granted, the bank will write off a further 42% of the lump-sum. So, if you pay off €7,000, they will write off a further €3,000.
2) If you pay a lump-sum off your warehouse between 5 years and ten years, they will write off a further 25% of the lump-sum. So if you pay off €8,000, they will write off a further €2,000.

So, if it's less than 10 years since you got your AIB split and you have some savings, then you should not overpay your active mortgage. You should save the money and pay it in lumps against the warehouse. (The minimum payment to qualify is €1,000.)
 
If you have a permanent tsb non-tracker split mortgage now owned by Pepper

Pepper has very high mortgage rates and they don't have any options for reducing them, so Pepper customers usually want to switch.

If your mortgage is split 50/50, then your average rate is competitive

1650552166604.png

So there would be little to be gained by switching to another lender.

However, if your warehouse is low in relation to the Active mortgage, the effect of the warehouse on reducing your average rate is less

1650552286747.png

If your finances allow, it could be worth trying to exit the warehouse so that you could start fixing your credit record and move to another lender.

However, in most cases, it will still be right to simply set any overpayments against the very expensive active mortgage and to bring the average rate down.

Brendan
 
I am concerned about what rate will apply when the warehouse portion is due to be paid. I have a tracker on the active part. Also, if I ask for some of the warehoused portion to be transferred to the active part does a tracker rate still apply to this portion. Thanks
 
Hi Grey

From your earlier posts, I see that you have €150k in the warehouse and the remaining term is 13 years.

I imagine that in 13 years when your term ends, they will apply a tracker rate, but they could argue that you must repay the warehouse or refinance it at the market rate.

But in 13 years, a warehouse of €150k will seem a lot less than it is now.

You should not transfer part of the warehouse to the active part unless you transfer it all. If you can afford higher repayments, make them against the active part and your active part will be cleared early. You can then start working on the warehouse.

However, if you might be trading up at some stage or if you want to borrow again, you could transfer the lot to the active part. It will only cost you €150k at the interest rate. But with the ECB rate expected to rise, this could become expensive.

Brendan
 
Can they insist that I move the whole warehoused part over if they see me making substantially higher payments?
 
They could.

My understanding though is that Pepper is not doing that. One person has reported that they wanted to overpay the warehouse, and Pepper told them to overpay the active part instead.

So only overpay if you can do so very comfortably.

Brendan
 
You must log in or register to reply here.
Back
Top