Saturday 25 February 2017

Nearly 70,000 households find ways to ease monthly burden

The options

Laura Noonan

Laura Noonan

WE might be a long way away from a mass market 'debt forgiveness' scheme, but almost 70,000 households have already availed of various initiatives to ease the immediate pressures of their mortgages.

Figures from the Central Bank show a straight-forward 'interest only' option is the most common form of mortgage restructuring, with 25,768 borrowers using that facility.

The good news is it can reduce payments considerably if you're a good way into your mortgage.

The bad news it will have a more limited effect for those who have bought more recently, since mortgage payments for the first few years are largely made up of interest anyway.

The other bad news is it's completely unsustainable in the long run. Borrowers aren't paying off any of their loans, and will never pay down their loan amounts while they remain on interest-only.

They're renting money -- which isn't a whole lot better than renting a house -- while still retaining ownership of a house that can yet again fall in value.

The next most commonly used mortgage solution is a 'reduced payment' -- an option used by 10,777 borrowers. These people are paying more than they would on interest only, and are at least paying some capital, so their mortgage is getting smaller.

But if they stay on reduced payments for a long time, the term of their mortgage will extend significantly. And this will mean higher interest repayments.

But they have the option to return to higher mortgage repayments when their situations improve, so they may not end up paying that much more interest over the longer term if their reduced payments are for a short period.

The third most popular way to restructure a mortgage is by extending the term, as 9,410 householders have done.

It can be a good option for those who initially took out loans for relatively short periods like 20 or 25 years.

But it's of limited use to boomtime buyers who typically took out 35-year mortgages, since banks would be reluctant to extend that term out even further.

Another 9,405 people are making reduced payments that are less than interest only. But these people effectively owe more at the end of every month than they did at the start, since their payments aren't even covering the interest they accrue.

Arrears capitalisation -- where you can add the arrears you've already built up on to the balance of your mortgage and pay them off over the rest of your term -- is another popular option, with 8,994 takers at the end of June.

Once again, interest payments are higher over the lifetime of the loan. But it's better than taking out a personal loan to pay off your arrears because interest rates on personal loans can be three times higher than those on mortgages.

Irish Independent

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