Life Homes

Monday 15 September 2014

Will bank wait until I get pension fund?

Published 02/11/2012 | 05:00

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My mortgage has become onerous due to a bad investment I took on with equity from my house in 2007, and I'm hoping to restructure it. I attempted to withdraw some of my pension fund (I'm 56) to pay it down, but was not allowed. Can I get the bank to "wait" on it?

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It may be possible to arrange this. Ciaran Phelan of the Irish Brokers' Association says, "You cannot touch a pension fund prior to retirement.

At retirement you can take part of it as a tax free lump sum (self-employed 25pc to a max of €200,000) and the rest in the form of a pension. The tax-free lump sum could be used to pay off the balance of a mortgage.

The earliest retirement age for self-employed is 60.

For those on company schemes, the retirement age is more likely to be 65.

The IBA has proposed allowing people access the tax-free cash portion of their pension during their lifetime, but there has, to date, been no agreement from Government.

The "split mortgage" outlined in the Keane report is a possible solution to mortgage indebtedness. This means warehousing part of the loan to be paid at a later date, with or without interest.

Given that you are retiring within four and 10 years from now, the bank might be prepared to offer you such a deal.

But be warned: your pension income will be significantly reduced as a result. Do check with your pension provider before you make this decision.

If the investment was a second property, then you could check with the bank on the possibility of a writedown. If you're lucky they may be prepared to do a deal with you selling the property, giving them the proceeds and reduced repayments in order to get it off their books as soon as possible, rather than wait.

Recently it was mentioned that if a property was rented out, a tracker mortgage could be lost. I have a rented property with an 'Investment Tracker Variable' mortgage. It is also called an 'Interest only combo '. What have I got? Is it a tracker?

Banks never cease to amaze me with the complicated branding they use to describe perfectly ordinary products.

There are only two types of mortgages: fixed rate and variable rate. There are two types of variable: tracker and standard.

What you have, according to Karl Deeter of Irish Mortgage Brokers, is "a totally boring, plain vanilla tracker".

He adds, "Your loan offer letter should have the exact details. While the labelling isn't important, the underlying product is and it won't say 'tracker' unless it is tracking something like the ECB rate".

It seems, in addition, that you have an interest-only version which means you are in an extremely fortunate position, repayment wise. I'd hang on to it for dear life.

Banks get antsy if the purpose of the property changes, i.e. from owner-occupier to investment. If you were given the tracker on investment at the outset, you've no worries. If it's changed, banks take different views.

For instance KBC will let you rent out your home and keep your tracker rate. Others will force you into a standard variable. Some operate a "don't ask, don't tell" policy by telling you the tracker could be lost but asking you to formally write and tell them.

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