Case study Negative Equity Mortgage Move

[Advice Seeker]

Income details

Income self: €2700 PAYE

Income history: 17 years continuous employment

Net monthly income partner/spouse: €2500 PAYE

Income history: 19 years continuous employment

Amount of child benefit received = €280

Personal circumstances so we can calculate your reasonable living expenses

The Insolvency Service has published Guidelines for Reasonable Living Expenses based on the family size, whether or not you need a car for work, childcare costs and other exceptional circumstances. By filling in this information, we (or you ) can calculate what your reasonable monthly living expenses should be.

One adult family or two adult family = 2 Adult

Do you need a car for work or do you use public transport? = Yes. Wife walks, I drive & cycle (No car loan)

Number of 4 - 11 years old: 2

Monthly childcare costs: €490

Monthly spend on special circumstances: Have moved to Dublin - Rent = €1500.


Home loan

Lender: BOI

Amount outstanding: €124K

Value of home: €100K - €110K (Approx)

Interest rate: specify whether tracker or SVR or fixed rate: 1.35% (Tracker)

Monthly repayment: €550

Amount in arrears: €0


Summary of discussions and agreements with the bank e.g. No discussion held with back


Investment property – College Fund for kids

Lender: BOI

Amount outstanding: €134k

Value of home: €90k to €100k

Interest rate: 1.25%

Monthly repayment: €587

Amount in arrears: €0

Monthly rent received: €650


Credit Union

Amount of shares: €12000


Other loans and creditors -

Overdraft - amount outstanding: €0

Credit Card - amount outstanding €750

Credit Card - monthly amount you are paying €80


Other savings and investments

BOI - €11k


Do you expect any lump sums in the medium term future?

Inheritances = Family Home worth €80,000 in approx. 5 years

Injuries awards. Approx €10,000 in 12 to 18 months


How important is retaining the family home to you?

Which of the following best describes your situation?


I don't care about keeping the family home. = Yes


Any other relevant information

What is your preferred realistic outcome?

Two options:

1. Sell family home, retain Investment for Kids and Buy in Dublin

2. Sell both properties and Buy in Dublin (Accidental Landlord)

 

[Joe_90]

I'd imagine it's more like how much will the bank lend you.

I assume your gross salary combined is €82,000.

As you are in negative equity the deposit rules don't apply to the LTI will so how much do you want to borrow?

The bank may or may not let you keep the second property but what's the rent, what's the value of the new house?

 

[Advice Seeker]

I'd imagine it's more like how much will the bank lend you.

I assume your gross salary combined is €82,000.

As you are in negative equity the deposit rules don't apply to the LTI will so how much do you want to borrow?

The bank may or may not let you keep the second property but what's the rent, what's the value of the new house?

Gross salary is €100k
Rent on investment is €650

Value of new house is €400k pushing to €450k if possible

 

[Brendan Burgess]

If you want to buy a house for €450k, Bank of Ireland will require you to have 10% of the price in cash, to allow you move the mortgage shortfall and tracker to it.

So you need €45k, but you have €23k . €33k after the injuries award.

They will allow you to keep the tracker for 5 years but you will pay an additional 1%.

The investment property is very profitable. You are getting €8k rent and paying €2k interest. So most of your repayments are paying down the capital. You should certainly keep this for the time being.

I presume your family home is rented out? That will continue to be a good investment as well.

I don't think that there is anything you can do for the moment. But I don't think you need to do anything either. You have a €200k stake in the housing market and this stake is financed by two very cheap mortgages.

So continue to rent.

Review the situation after a few years. You will have equity in the homes. You will have paid off a lot of capital so they will no longer be great investments. Buying your own home would be a better investment.

Are you paying interest on your credit card? If so, use the BoI money to pay off the balance in full.

Brendan

 

[Advice Seeker]

Thanks for the reply Brendan.

It's good to hear the options and that we are healthier than we thought. We can also get to the E45k by end of 2017 with a belt tightening up exercise.

Just a question about the below.

Review the situation after a few years. You will have equity in the homes. You will have paid off a lot of capital so they will no longer be great investments. Buying your own home would be a better investment.

Can you explain the reasoning why they will no longer be a great investment in a few years¿

Also would there be any issue with me getting onto the mortgage as the home house is in my wife's name.

Many thanks

 

[Brendan Burgess]

Can you explain the reasoning why they will no longer be a great investment in a few years¿

A house worth €100k with a €130k cheap tracker is a great investment. The rent exceeds the interest. If you sell it, you will end up with a shortfall of €30k.

A house worth €130k with a €70k mortgage is not as good. You have equity of €60k so it's probably better to sell it and use the proceeds to pay down a mortgage at market rates.

Brendan