Plan to freeze part of mortgages offers hope to struggling families
THOUSANDS of struggling homeowners will be allowed to put part of their mortgage on ice as part of a new deal being planned by banks, the Irish Independent has learned.
The plan will see part of the loan shelved and will be known as a "split mortgage".
Part of the loan will effectively be "frozen" and put to one side, meaning no repayments and no interest for an indefinite period. This would mean monthly repayments are only made on the active portion.
It would dramatically reduce monthly outgoings for cash-strapped families and give them breathing space -- which the banks hope would allow them to repay the rest of the loan when their finances improve.
For example, on a €200,000 mortgage as much as half could be "frozen", which would mean monthly repayments of €840 halved -- a saving of €5,000 a year.
It is understood that Bank of Ireland and its subsidiary ICS have already submitted proposals to the Central Bank.
Both AIB and EBS have also confirmed to the Irish Independent that they are developing split-mortgage solutions. And Permanent TSB is understood to be developing one too.
Banks will only offer deals to those distressed mortgage holders they consider to have good prospects of getting back to financial health.
Some 53,000 people are six months or more behind on their mortgages, with many of these likely to be considered for the new product. There are nearly 800,000 mortgages held in the Republic.
Under the proposals, no more than half the mortgage would be put to one side.
The maximum amount of time that a mortgage would be split is likely to be 20 years.
While it is possible that zero interest will apply to the part of the mortgage that is "frozen", some lenders may want to apply a low interest rate.
Repayment of the part of the 'frozen' mortgage could be made if the homeowner:
- gets back on their feet financially.
- Retires and gets a lump sum from their pensions.
- Sells the house at some stage and downsizes to a smaller house.
- Dies and the house is sold.
- The children in the house start earning and help pay off the shelved portion.
The deal would be reviewed every three years and if the borrower's circumstances improve, some or all of the amount that has been shelved could be added back into the mortgage.
If the homeowner was finding it difficult to cope with even the new reduced payments, then a voluntary surrender of the home could be initiated.
And in the worst-case scenario the remainder of the loan would need to be repaid by sale of the property after death of the homeowner.
The concept of split mortgages was recommended by Department of Finance official Declan Keane last September.
More than 107,000 homeowners are either in arrears on their mortgages or have had to ask their lenders to put them on interest-only.
Banks have been given until the end of this month by the Central Bank to outline in detail the scale of their arrears.