Mortgage sustainability

Dear Mr Burgess

I recall that in relation to an outstanding mortgage you stated some time ago that provided variable interest can be paid on the 'value' of the property (and not the o/s mortgage if higher e.g negative equity) that same is in effect sustainable and should be accepted by the lender as such...I also understand that the Governor of The Central Bank Mr Patrick Honohan concurred with this view quite recently.

Am I correct on both points and if so does this principle apply to all mortgages other than just the family home?

If so what pressure can be brought to bear on lenders who insist on capital repayments as well?

Many thanks

Kind Regards

FinView said:

provided variable interest can be paid on the 'value' of the property (and not the o/s mortgage if higher e.g negative equity) that same is in effect sustainable and should be accepted by the lender as such...

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I doubt that this is correct.
Can you show where either Brendan or Honohan have said this?
Certainly the CB have said that if the interest on the outstanding loan can be paid then it MAY be considered a sustainable solution but it really depends on the overall circumstances of the specific case - e.g.:

http://www.askaboutmoney.com/thread...-in-distress-must-be-repaid-by-age-70.187686/

But there is no onus on a lender to always accept ability to repay the interest only on a mortgage as a sustainable solution as other factors need to be considered.

I certainly know somebody with BoI who was paying almost 80% of their normal repayments (thus full interest and most capital due - but racking up arrears each month) and BoI categorized it as unsustainable several times.

Fin View.

I would be sure your mortgage contract states Principal + Interest ,therefore Mr Bank is well within rights to expect that you pay both principal + interest.

That said , given the ongoing (arrears) and repayment capacity issues, Mr Bank may well accept a repayment of interest only for an agreed period.
That does not mean the mortgage is sustainable , it means things are not dis-improving and with a rise in house prices may even upturn.

Indeed an interest only option may in some circumstances be deemed (sustainable) by Mr Banker.
My advice (for what it is worth) is be very nice to Mr Bank and see what he will accept as sustainable versus what you want or can realistically afford.

Hi FinView

I have argued on a number of occasions, that the lender should be willing to accept the market interest on the current value of the home if that is all the borrower can pay. It's screamingly obvious to me, but the banks can't see that. The Central Bank certainly can't see it either, so no, Honohan did not agree with me.

However, we did manage to get the Central Bank to agree that interest only might be a long-term solution.

On family homes, if you are paying the interest in full on the mortgage, there is no chance that you will lose your home.

"does this principle apply to all mortgages other than just the family home?"

This is a difficult one. If you have an investment property in negative equity where you cannot meet the repayments, then the lender will look at your other assets. If, for example, you have a family home in positive equity or other assets, the lender would be quite right to seek full repayment.

It's probably best for you to fill in the following so that you can get a complete answer:

Information required for mortgage arrears and negative equity questions

Brendan Burgess said:

I have argued on a number of occasions, that the lender should be willing to accept the market interest on the current value of the home if that is all the borrower can pay.

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OK - my apologies. I didn't realise that Brendan had argued this point.

Hi Brendan
Many thanks for clarification which is sufficient and of great assistance to me.
I accept that Gov Honohan referred to the total mortgage o/s and not the property value in terms of interest only payments. However as the o/s mortgage amount would be reduced to the property value in say a PIA surely it would follow that interest only payments on the reduced amount if affordable would be accepted by the lender rather than have to dispose of the property
Kind Regards
Finview

P.S Thanks also to ClubMan & Gerard Canning for their contribution

FinView said:

the o/s mortgage amount would be reduced to the property value in say a PIA surely it would follow that interest only payments on the reduced amount if affordable would be accepted by the lender rather than have to dispose of the property

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Hi FinView

The lender is not obliged to approve a PIA and so might not agree to its being written down. In a bankrrutpcy, they can force the sale of the asset.

Lenders, and the Central Bank, do not act rationally. They act from custom and practice without really thinking.

Brendan

In broad terms, the Central Bank accepts that a lifetime interest-only loan modification may be considered a sustainable solution if there is a realistic prospect that:-

• the borrower will be in a position to meet the interest-only payments at the agreed rate throughout the balance of his/her lifetime; and
• the borrower will have sufficient assets to discharge the loan in full from his/her estate.