Mortgage rescue deal could cost you up to €50,000
But it is still only option for thousands
Published 30/08/2011 | 05:00
STRUGGLING homeowners who make deals with lenders to reduce their mortgage payments face paying tens of thousands of euro in extra interest charges.
New figures show that almost 70,000 people have now restructured their mortgages -- mostly by extending the repayment period or switching to 'interest only' payments.
The Irish Independent can reveal that those with a typical €200,000 home loan who extend their mortgage term by just five years face paying €34,000 more in interest charges. And borrowers could end up paying more than €50,000 in extra interest for the same €200,000 mortgage.
The startling figures have been produced by personal finance expert Brendan Burgess. They reveal the huge long-term costs for families seeking to ease the burden.
But the Central Bank, which has been leading the way on policies to ease the mortgage crisis, admitted it had "no figures" on the cost implications for borrowers who restructure their mortgage.
The costs are particularly pertinent since the Government has to come up with a plan to deal with the mortgage crisis by the end of the year under the EU-IMF bailout deal.
But there will be no "debt forgiveness". The solution is likely to focus heavily on "restructuring" mortgage debt.
Those measures are expected to include encouraging banks to offer more flexibility to mortgage customers in difficulty -- by agreeing to suspend payments or allowing borrowers to temporarily make lower payments.
Both of those solutions are likely to add to the ultimate interest costs of the loan since it will take people longer to pay back what they have borrowed.
The banks have to outline the full interest costs of the new mortgage terms when they agree any restructuring.
Documents on most banks' websites acknowledge that extra costs are "likely" or "possible".
A spokesman for the banks' lobby group, the Irish Banking Federation, said: "There's a possibility, if not a probability, that there will be higher interest payments (if you restructure your mortgage).
"It's an important consideration for people to take into account."
Mr Burgess pointed out that while you could end up with higher interest rates over the lifetime of your mortgage, there were benefits to restructuring your loan rather than letting the situation slide.
If you have mortgage arrears, of say €10,000, and agree to have those added on to your main loan, you could end up paying them back over 20 years, piling on higher interest costs.
But at least the €10,000 would not count as arrears anymore. "If you don't have any arrears, the bank can't initiate legal action against you," Mr Burgess said.
Lumping in arrears with a mortgage that carries interest at a rate of perhaps 5pc is cheaper than taking out a personal loan to pay off arrears, since those loans can carry interest rates of more than 12pc.
Homeowners also have the option of reverting to their "old" system of mortgage repayments if their circumstances improve.
This would reduce the long- term impact on interest payments.
And the real cost of any extra interest payments will be lessened, because of inflation. The rising cost of goods and services means €10,000 in the future will be worth less than €10,000 is worth now.
Yesterday's Central Bank data charts the worsening plight of mortgage holders, with almost 56,000 now behind on their payments by more than three months, up from about 50,000 at the start of the year.
The figures include 15,723 cases that are in arrears of more than six months, 7,236 where a formal demand has been issued but no court proceedings have been taken, and 3,027 where court proceedings have been issued.
Just 54 properties were repossessed on foot of court proceedings in the three months to June, while another 119 were repossessed through abandonment and voluntary surrender.
There was some good news for mortgage holders, however, as European Central Bank chief Jean-Claude Trichet offered further hope that interest rates are unlikely to rise soon.
Worries about inflation have typically prompted the ECB to hike rates. Mr Trichet yesterday said he was reviewing inflation risks in Europe with the results ready within weeks.
And if it is judged that inflation is no longer as big a risk, hikes are likely to be put on the back-burner.