Your Mortgage
Printed from www.survivingredundancy.ie Copyright © 2012
This article was written by Brendan Burgess. If you have any corrections or suggestions to improve the article, please email him at brendan@thepanel.com
- Talk to your mortgage lender immediately you are at risk of losing your job – don’t wait until you fall into arrears If you are in arrears, make a payment every month, even if it’s very small.
- Your credit record is of long term importance to you – try to keep it intact.
When you suffer a sudden and serious drop in your income, your first priority is to reduce your monthly cash outgoings. The best way to achieve this is to get a payment holiday on your mortgage. A payment holiday means exactly that - you will not have to make any repayments of capital or interest. This is what you should be asking the bank for.
If they refuse that, you should ask for the mortgage to be switched to interest only until you are back on your financial feet.
The banks will generally be flexible. Their attitude will depend on your relationship with them, your arrears record, the size of your mortgage in relation to the value of your home (LTV ratio). Check out Askaboutmoney.com for some case histories .
If you expect to find a job again soon, they will probably give you a payment holiday. You should certainly begin by asking for this. If it’s refused, they might switch it to interest only instead.
Before you approach the bank, read the Irish Mortgage Federation's Code of Practice on Mortgage Arrears . If the bank is not being flexible, quote this to them.
The interest rate on mortgages in many cases is below the interest rate that the banks have to pay to attract deposits. For this reason, many banks are anxious to get their mortgages repaid as quickly as possible, so that they can lend the money to new borrowers at higher rates.
If you get a payment holiday, the total amount you owe will increase
During a payment holiday, the lender continues to charge you interest on the loan, so the amount outstanding will rise.
For example, with interest rates of around 4%, this means that a loan of €100,000 is increasing by €4,000 a year. It’s not huge. Especially if the house is worth a lot more than the outstanding mortgage.
But will this not add years to my mortgage and so won’t I end up paying a lot more in the long term?
This is not the correct way to look at a mortgage. Variable rate mortgages in Ireland are very flexible. You can make capital repayments or increase your mortgage payments whenever you like without penalty. So when your employment and financial situation improves, you can increase your monthly repayment which will reduce the term of your mortgage.
The best way to look at a mortgage is that you are renting money instead of renting a home. As long as you have that mortgage you will have to continue paying rent. If you reduce the mortgage, you reduce the rent. You can pay it off over 5 years if you wish. You can pay it off in one lump sum from an inheritance or retirement payment.
Your mortgage is likely to be your cheapest loan. So you are better off having an interest only mortgage and using the cash released to repay other more expensive borrowings e.g. your credit card or your car loan. Some people skip their car loan repayments or stretch their credit card just to keep up with their mortgage repayments. This is exactly the opposite of what you should be doing.
The effect of a reduction to interest only
There are two types of mortgages – repayment mortgages and interest only mortgages. Most mortgages are repayment mortgages which means that you are paying some capital off your loan with every payment.
| Time left on your mortgage | Total repayment | Capital element |
| 10 years | 1000 | 700 |
| 20 years | 600 | 300 |
| 30 years | 477 | 140 |
| 40 years | 385 | 50 |
| Interest only | 333 | 0 |
Table Monthly shows repayments on a €100,000 mortgage at 4% interest rate
From the table, it can be seen that there is great scope for reducing your monthly repayment if you have only 10 years left on your mortgage, you can reduce the repayments by 70% by switching to interest only.
If your bank allows you to switch to interest only, then the amount outstanding on the loan remains the same. At some stage, you will need to resume capital repayments, but there is no hurry. This can happen after you are back working again and have sorted our your other financial issues.
If you have a permanent tsb mortgage on which you have made overpayments in the past, you have an automatic right to a payment holiday
The permanent tsb mortgage is very flexible in that any overpayments are treated as advance payments. So if you paid a lump sum off your mortgage 3 years ago, you may be able to simply take a payment holiday for a few years. You can find their overpayment calculator here
Maintaining your credit rating is very important
One of the big risks of short-term unemployment is that you might damage your credit rating. This can have long term impacts on your ability to borrow into the future. So do what you can now to protect it.
Speak to all your lenders and see what you can do. Don’t run up credit card bills just to pay the mortgage.
What social welfare help is available to help you with your mortgage
http://www.askaboutmoney.com/showthread.php?t=99618
There is a Mortgage Interest Supplement available as follows:
If you are getting a social welfare payment, you may qualify for Mortgage Interest Supplement from your Local Health Office. This will help you pay part of your mortgage.
The amount of Mortgage Interest Supplement will be worked out by the Local Health Office's Community Welfare Officer and will generally ensure that your income after paying the interest on your mortgage does not fall below a minimum level. This level is the Supplementary Welfare Allowance minus €18.
You will only get assistance with the interest portion of your mortgage repayments (i.e., not with the portion that pays off the actual loan) and house insurance.
Should I use part of my redundancy payment to pay down my mortgage?
This is such an important issue that we have written a special article on it.
If your mortgage is just unaffordable in the long term…
Most of the advice above is based on the assumption that you will be back in full time paid employment after a few months. But what if you return to work on a lower salary or if you have little prospect of employment and can’t afford your mortgage in the medium to longer term?
If you are single, you may be able to supplement your income tax-free by renting a room for up to €10,000 a year. If the rent is more than €10,000 a year, it is taxable. This might not be a problem for you if you are unemployed and if you don’t have taxable income.
You may consider selling half your home. Do you have a friend or relative who can’t afford to buy a house on their own? If so they might be encouraged to buy half your home. If you go down this route, do up an agreement with them before hand. A draft agreement can be found here .
If you have a family, then you have very few options. You can’t sell part of the house or take in tenants as easily as a single person. You might try to sell the house and rent it back.
Related article: Repaying your Mortgage with your Redundancy