Asked for Advice

jam_mac_jam

Family member has asked me for advice. I dont really know what to tell them. There doesnt seem to be any way out of this?

The dreaded letter came changing from Interest only to capital. Their bank have stopped all interest only .They bought in 2006 for around 400, house is maybe if you are lucky worth 250 maybe nearer 200. on interest only at the moment of 1k if it changed to capital it would be over 2K. They can pay this, as its rented out, but is there any real point.
Are they just throwing good money after bad. Do you just sell it but where do you get the difference. What do you do in this situation?
This is a rental property not their main home.

amdublin

I'm not being facetious but why are they asking you for advice when you don't seem to know anything??

In the short term they could contact the bank and try negotiate some more time on interest only - unlikely bank will agree but worth a try. Might get three months.

So, take it they have to pay full capital and interest - I assume they budgeted for this anyway when they took out the mortgage.

Do they sell and realize a €150k loss which they owe to the bank? If yes they will need to pay the deficit to the bank (from savings?).

jam_mac_jam

amdublin wrote: »

I'm not being facetious but why are they asking you for advice when you don't seem to know anything??

In the short term they could contact the bank and try negotiate some more time on interest only - unlikely bank will agree but worth a try. Might get three months.

So, take it they have to pay full capital and interest - I assume they budgeted for this anyway when they took out the mortgage.

Do they sell and realize a €150k loss which they owe to the bank? If yes they will need to pay the deficit to the bank (from savings?).

ok, I am asking what peoples opinions on what the best thing is to do, I dont see why that means I dont know anything but thanks for your answer, if they budgeted for this then I would not really be asking.

TwoShedsJackson

If they can cover it with the rent, then they need to keep doing that. They don't really have any other option, apart from ceasing to pay the mortgage. They can't just sell the house as the bank have the deeds and will almost certainly not release them to allow the house to be sold if the amount it sells for will not discharge the mortgage.

If they do that, it will not be looked on kindly when it gets to court as they were able to pay it, they just chose not to, as opposed to being genuinely unable to pay it.

Then the bank will repossess the house and come after them for the 150k or whatever they still owe.

So they should keep paying the mortgage and eventually sell the house when the price rises or the value of the mortgage has fallen to the rough price of the house, you are of course talking decades here.

jam_mac_jam

TwoShedsJackson wrote: »

If they can cover it with the rent, then they need to keep doing that. They don't really have any other option, apart from ceasing to pay the mortgage. They can't just sell the house as the bank have the deeds and will almost certainly not release them to allow the house to be sold if the amount it sells for will not discharge the mortgage.

If they do that, it will not be looked on kindly when it gets to court as they were able to pay it, they just chose not to, as opposed to being genuinely unable to pay it.

Then the bank will repossess the house and come after them for the 150k or whatever they still owe.

So they should keep paying the mortgage and eventually sell the house when the price rises or the value of the mortgage has fallen to the rough price of the house, you are of course talking decades here.

They are the type of people who wouldnt dream of not paying the mortgage anyway. I just think that it may be better to try and pay some of it off with savings or pension for the negative equity and maybe a loan for the rest because in ten years time it could be a lot worse. This is why I dont know.

They will be talking to other people then me anyway, but I think you are right.There isnt much choice there.

bath handle

jam_mac_jam wrote: »

They are the type of people who wouldnt dream of not paying the mortgage anyway. I just think that it may be better to try and pay some of it off with savings or pension for the negative equity and maybe a loan for the rest because in ten years time it could be a lot worse. This is why I dont know.

They will be talking to other people then me anyway, but I think you are right.There isnt much choice there.

I have never heard of anything so stupid. A loan to pay off part of a mortgage???the loan would inevitably be at a higher rate of interest and for a shorter term. It would worsen the cash flow problems and add to the overall cost of repaying the debt. Accelerating the mortgage repayments would be easier and less costly. That however seems to be exactly what they are trying to avoid.

Zamboni

jam_mac_jam wrote: »

ok, I am asking what peoples opinions on what the best thing is to do.

I don't see any issue here and you said they can afford it?

The best thing to do is to continue to rent the place out and meet their contractual obligations by paying the capital and interest repayments.

Dymo

I don't condone this, but this is whats happening now.If people know their facing their house eventually being repossessed which a lot of people are (this was reported after the repossession cases last week)

People stop paying there mortgage and know it could take up to 3 years to get to the high court for a repossession order. If their new mortgage figure will become €2,000 and all they can afford if €1,000 after 3 years they will have saved €36,000. The house is going to be repossessed if all they can pay is €1,000 per month anyway so they decide to keep the €1,000 instead of giving it to the bank.

People feel they have nothing to loose, their not going to ever come up with the short fall.

Unless banks start talking to people instead looking for the best possible solution instead of their profits this is going to become more widespread.

jam_mac_jam

Zamboni wrote: »

I don't see any issue here and you said they can afford it?

The best thing to do is to continue to rent the place out and meet their contractual obligations by paying the capital and interest repayments.

they can but it will be very hard for them is all.

jam_mac_jam

bath handle wrote: »

I have never heard of anything so stupid. A loan to pay off part of a mortgage???the loan would inevitably be at a higher rate of interest and for a shorter term. It would worsen the cash flow problems and add to the overall cost of repaying the debt. Accelerating the mortgage repayments would be easier and less costly. That however seems to be exactly what they are trying to avoid.

The idea of a loan is that you no longer own the house and if it halfs in value over the next few years you dont loose another 100K.Not completely stupid.

Baralis1

jam_mac_jam wrote: »

they can but it will be very hard for them is all.

They will just have to grin and bare it I'd say or risk losing their own home also if they default on the mortgage.
I'm afraid I don't have a massive amount of sympathy. If they bought an investment property worth 400K without fully considering if they would have any problem paying off the mortgage interest plus capital in the future, it smacks of celtic tiger greed to me.

dearg lady

jam_mac_jam wrote: »

The idea of a loan is that you no longer own the house and if it halfs in value over the next few years you dont loose another 100K.Not completely stupid.

If they're in 100-150k of negative equity they won't get a loan for this!!

3DataModem

1. If they think the place will fall in value, they should sell.

2. If they think the place will incrase invalue, they should keep it.

It is possible that one of the above options is not open to them due to financial circumstances (eg they may not be able to sell and pay off the neg equity) If so then they should do the other.

Note; interest rates are at a historic low, so the mortgage is at its most affordable now in absolute terms. In the future inflation will make the mortgage repayments relatively smaller and smaller, but the rental income will increase broadly in line with inflation. So if they can weather the storm at the low rates for the next half-decade, and they don't think the property will fall much more... it may be worth keeping.

I have a place worth about 150k with about 238k debt. However the interest rate is nice and low and the rent is currently about 20pc more than it should be. I definitely can't afford to sell so I'll ride it out... the apartment might bottom out at 90k or so, but the rent will keep it going even if it drops - say - 40 percent. As inflation increases over the mext 4-6 years the rents will pick up somewhat relative to the mortgage repayment, and as the capital is paid off I will be less exposes to interest rate changes which are also inevitable. So I'm keeping it knowing I am losing money in the short and medium term, but also knowing that one way or another I will have an unencumbered asset earning city-centre rent when I retire.

jam_mac_jam

dearg lady wrote: »

If they're in 100-150k of negative equity they won't get a loan for this!!

no as I said above, pay some of it and get a loan for some.