Interest only mortgage maturing next year - no means to repay it.

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Nadyden

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Hi, I’m looking for some advice on behalf of my parents who took out an interest only mortgage in 2008 to invest in a high risk foreign property investment that never materialised. The term is due to expire in sept 2023, when they will both be 75. The issue is that the interest rate tracks the ECB rate and my parents are now now faced with their mortgage payment trebling from €300 to over €1,000 p.m while only receiving state pensions. The repayments are approx 50% of their monthly income. They have never been in arrears before. but simply cannot afford a repayment of €1,000 per month. What is the likelihood of Pepper offering a settlement to clear the loan? My parents have no other assets or source of income. So I would be considering refinancing my home to try to pay down the capital. The loan value is €350K and property value is approx €450 - €500K. I have approx €200K of equity in my home.
Would any consideration be given to the fact that they were sold a mortgage on their primary residence that would mature after retirement? They also don’t want to sell their home when the mortgage matures, as there wouldn’t be enough equity left to buy another property in Kildare and they obviously won’t get a mortgage. TIA
 
Nadyden said:
The loan value is €350K and property value is approx €450 - €500K. I have approx €200K of equity in my home.
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Nadyden said:
an interest only mortgage in 2008 to invest in a high risk foreign property investment that never materialised.
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Nadyden said:
My parents have no other assets
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This is very confusing and contradictory. They seem to have a home.

Are you saying that your parents have a family home worth €450k
On which they have the subject mortgage of €350k?

The origin is irrelevant.

It seems to me that your parents made a terrible investment and now face the consequences.

Next year, interest rates may be lower. So don't assume that repayments will be €1,000 per month.

The loan matures next year. It is not rolled over as you seem to think. The lender will write to them and ask them to repay the loan. If that means selling their home, so be it.

I don't see why the lender should do a deal. There is plenty of assets to cover the loan. That doesn't stop you from asking.

They could just sit tough and face legal action. But it would take the bank a long time to get repossession. In the meantime, the unpaid interest would continue to be added to the mortgage.

Alternatively, could you get an investment mortgage to buy their home and rent it back to them?

Brendan
 
My parents had a similar loan to this with Pepper , over €450k owing: interest only maturing earlier this year. Parents age 85 and 78. NIB gave them 15 year IO in 2007.
They did however have other income generating assets which they could have sold to pay this loan back but in the end they only needed just over €200k to pay back Pepper. I took a mortgage out on my house which was mortgage free for that amount and lent it to them. They pay me back what I pay the non- bank lender that provided the mortgage. Legal advice we got was not to pay Pepper a penny back & let them chase you, it’s their problem! Didn’t take that advice & glad we didn’t as parents would now be paying the 6.5% or so plus May rent more penalty interest that Pepper would charge. Best option here would be to get mortgage on your place , pay off mortgage with Pepper, get parents to contribute what they can to you, assuming you can carry the difference & assuming you can get long term finance at rates more competitive than Pepper and then you get their house when they eventually pass on at some stage. This is all assuming the parents don’t want to move from their current house & you have the financial flexibility to do this. Lots of ifs and buts in here, but a solution can always be found if you are willing to be creative
 
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Brian McD said:
My parents had a similar loan to this with Pepper , over €450k owning interest only maturing earlier this year. ... in the end they only needed just over €200k to pay back Pepper.
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How did they manage to pay only €200k to clear a €450k interest only loan?
 
It sounds Nadyden that you currently have a mortgage so are planning to take out another mortgage of €200K to give to your parents to pay some of the debt they will owe €350K next September, plus any arrears they will have built up. Your €200K leaves them €150K short. I can’t see it working unless you have other siblings, can you afford the repayments?

They basically have been renting for €300 a month for the last 15 years so they have a very good run of it. What has their plan been to pay off the mortgage?

What if they sell the house, clear their debt and then use the €150K to add a granny flat to your house. They can pay you rent etc.
 
They saved up the other €250k over those 15 years , and should clear the current €200k over ten years. Their current income is €140k per annum. So I appreciate a very different situation from Nadyden, unless Nadyden can get some siblings to step in also
 
Brian McD said:
They saved up the other €250k over those 15 years , and should clear the current €200k over ten years. Their current income is €140k per annum. So I appreciate a very different situation from Nadyden, unless Nadyden can get some siblings to step in also
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Ok, thanks for explaining.
 
Nadyden said:
They also don’t want to sell their home when the mortgage matures, as there wouldn’t be enough equity left to buy another property in Kildare and they obviously won’t get a mortgage. TIA
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How much is their home worth? What would be left if they sold and paid off the €350k loan? Could they buy another place, maybe with your/family help, with the balance? They might need to be flexible on location if the budget isn't enough for their preferred location. Could they rent for the rest of their independent years with the balance?
 
What's the situation with the foreign property? Are there any assets there?
Do they have a pension from working that they can access?
Would they consider renting a room?
Personally i think you remortgaging to pay off a lump sum leaving 150k loan is a bad idea. Being honest, why would a lender even agree to this?
Could your parents sell the property and gift you the proceeds and you could purchase a one or two bed property and allow them live there? There may be tax implications if they pay below market rent which youd need to determine.
Alternatively they could sell up and relocate to a more rural location where they might be able to purchase a small property.
 
Brian McD said:
My parents had a similar loan to this with Pepper , over €450k owning interest only maturing earlier this year. Parents age 85 and 78. NIB gave them 15 year IO in 2007.
They did however have other income generating assets which they could have sold to pay this loan back but in the end they only needed just over €200k to pay back Pepper. I took a mortgage out on my house which was mortgage free for that amount and lent it to them. They pay me back what I pay the non- bank lender that provided the mortgage. Legal advice we got was not to pay Pepper a penny back & let them chase you, it’s their problem! Didn’t take that advice & glad we didn’t as parents would now be paying the 6.5% or so plus May rent more penalty interest that Pepper would charge. Best option here would be to get mortgage on your place , pay off mortgage with Pepper, get parents to contribute what they can to you, assuming you can carry the difference & assuming you can get long term finance at rates more competitive than Pepper and then you get their house when they eventually pass on at some stage. This is all assuming the parents don’t want to move from their current house & you have the financial flexibility to do this. Lots of ifs and buts in here, but a solution can always be found if you are willing to be creative
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Thanks for your response. It seems it might be wishful thinking that Pepper would reach any agreement and if all of your assumptions mentioned above worked out (loan, lower finance rates etc.) the best option might be for me to mortgage my house to buy them out. They could rent it from me at a lower amount. Ideally we wouldn’t sell the house. My father feels that it is his legacy to his children and unfortunately one wrong decision has ruined that. I’d like to keep it in the family if I can.
 
dubdub123 said:
i think you remortgaging to pay off a lump sum leaving 150k loan is a bad idea.
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It is one of these bad ideas which just turns out to be the best of the bad ideas out there.

It's not as bad an idea as seeing your parents homeless.

But before doing it, you need to make sure that they don't repossess the property anyway.

And such loans are often forgotten and when your parents die, your siblings say that it was a gift and you end up in the High Court. So if you do lend money to your parents, make sure that your solicitor draws up a formal mortgage document which says that your loan must be repaid when the house is sold.

They should also make it absolutely clear in their will that the house is to be sold and the loan repaid.

Brendan
 
Nadyden, I wouldn’t rush into anything here. You are taking on a big liability if you do this, so the costs & benefits if doing so need to be shared equally amongst the children. Nobody should be put under financial pressure as a result of taking this action afterwards, otherwise it’s not worth it. You probably need tax advice too, so lots to consider
 
dubdub123 said:
What's the situation with the foreign property? Are there any assets there?
Do they have a pension from working that they can access?
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It doesn’t look like anything will come from the foreign investment. The fund were relying on the land being zoned for residential and it never happened because of the crash, so it’s valued as agri land now. They held out hope for years it would materialise, but it’s unlikely they’ll ever get their money back. My dad was a self employed carpenter with no pension, my mam had a contributory pension, but it’s not much more than the state. They unfortunately just got really bad advice and now have to suffer the consequences.
 
Brian McD said:
Nadyden, I wouldn’t rush into anything here. You are taking on a big liability if you do this, so the costs & benefits if doing so need to be shared equally amongst the children. Nobody should be put under financial pressure as a result of taking this action afterwards, otherwise it’s not worth it. You probably need tax advice too, so lots to consider
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Definitely lots to consider. There are 5 children, so ideally the burden would be shared, but honestly I’m not sure the others are prepared to do so. But that’s their prerogative and I wouldn’t force it/hold it against them.
 
Brendan Burgess said:
But before doing it, you need to make sure that they don't repossess the property anyway.

And such loans are often forgotten and when your parents die, your siblings say that it was a gift and you end up in the High Court. So if you do lend money to your parents, make sure that your solicitor draws up a formal mortgage document which says that your loan must be repaid when the house is sold.
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Thanks for the advice Brendan. There’s a lot of variables and intricacies to consider, so I will certainly get my own legal advice.
All of the responses have made me realise that the only ways out that I can see, is some sort of input from family or to sell up. In the mean time my parents will need to speak to Pepper about a payment plan on the current repayments, as they can’t afford them with the ECB increase. More complication!
 
Nadyden said:
In the mean time my parents will need to speak to Pepper about a payment plan on the current repayments, as they can’t afford them with the ECB increase.
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I wonder would it be better if the family helped out here to meet the repayments.
Going into arrears is only going to complicate matters.

Brendan
 
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