Alternative repayment arrangements for people in mortgage difficulty
If you are having difficulty paying your mortgage, your lender may offer you an alternative repayment arrangement - often called a mortgage restructure. This document is concerned with a mortgage on your home (your primary residence) – not a buy-to-let property. It outlines some of the alternative repayment arrangements that may be offered to you and issues that you should consider. The arrangements available from your lender may be part of the Mortgage Arrears Resolution Process (MARP) or outside it. They may vary as the market continues to evolve and change.
Every case is different and your lender is obliged to look carefully at your personal circumstances before deciding what option to offer you. Having assessed your financial situation, your lender will have chosen an alternative repayment arrangement that it considers appropriate and sustainable for your circumstances.
However, it is important that you also think carefully about the offer and whether it is sustainable in the long term from your point of view. You will be signing a new mortgage contract and will be bound by its terms for the duration of the agreement. Make sure that you fully understand the details of the offer. You can use the MABS jargon buster to check the meaning of financial terms.
Considering the offer
You need to look at 2 things in particular – affordability and sustainability. As part of the Mortgage Arrears Resolution Process (MARP) you will have completed a Standard Financial Statement (pdf) for your lender. You can use this to review your income and outgoings.
When assessing whether you can afford the proposed repayments, things you should consider include:
- Your current net monthly income
- All your current monthly outgoings
- The net disposable income that you will have left to pay the mortgage
- How much your assets are worth
- Any other debts you may have
- If the alternative repayment arrangement offered is a short-term one, whether you will be able to pay the higher repayments when the arrangement ends
Tools to help you
- Most lenders have family finance budgeting tools on their websites
- Consumerhelp.ie has several useful budgeting calculators
- Mabs.ie also has a budgeting tool
- The Insolvency Service of Ireland (ISI) calculator of reasonable living expenses may also be useful
- The ISI’s website backontrack.ie has information for people in financial difficulty
To assess whether you can keep up payments for the remaining term of the mortgage, you need to consider what may change in your personal situation and whether future external changes may affect your ability to repay. While it may be difficult to forecast far into the future, you can assess, for example, what level of interest rate increase you could cope with.
Things to consider include:
- Your current and future income.
- Your current and future expenditure.
- Your age and stage in life. For example, your dependants may need childcare now or may need support going to college in the future.
- Future interest rates and the future value of your assets.
- The possibility of inheritances or other lump sums in the future.
Tools to help you
Consumerhelp.ie has a rate change calculator.
Alternative repayment arrangements
Each lender may offer slightly different alternative repayment arrangements, so this is a general guide. The Central Bank's lending limits on mortgages do not apply to the restructuring of mortgages.
In general you cannot be asked to change from an existing tracker mortgage to another mortgage type, unless the lender has considered all of the options it offers and has concluded that none of the options that would allow you to keep the tracker interest rate are appropriate and sustainable for your circumstances. If this is the case, your lender may offer you an arrangement that requires you to change from an existing tracker mortgage to another mortgage type. Your lender can only do this if the new arrangement is affordable for you and is sustainable over the long term.
Some arrangements are short-term – this means that they have a specific duration that will expire at some point in the future – for example a 6-month interest-only arrangement. Others are long-term – for example, extending the term of the mortgage. Some lenders may approve a trial arrangement before finalising the proposal. In some cases, the proposal will amend the terms of your original contract, in effect creating a new contract. In other cases, you may be asked to enter into a completely new contract with your lender.
If you are being offered an alternative repayment arrangement under the Mortgage Arrears Resolution Process (MARP) you must always get:
You must also be told to get independent advice on the proposal. As part of the Mortgage Arrears Information and Advice Service, your lender will pay €250 for a consultation with an accountant of your choice. You can find a list of participating accountants on keepingyourhome.ie.
Some examples of alternative repayment arrangements that your lender may offer include the following:
Temporary deferral of payment
This is usually a short-term arrangement to ease immediate financial pressure. It is also called a payment break or a moratorium.
Move to an interest-only mortgage or change the way you pay interest
This means that you will only pay the interest due on your loan during a certain period, and not the capital amount due. You may be offered an interest-only option for under or over a year.
In some cases, you may be offered a less than interest-only arrangement for a short period, as interest-only repayments may not be affordable when your situation is assessed. The difference between this lower amount and the interest-only repayment amount may be added on to your outstanding mortgage balance when the alternative repayment arrangement expires.
You may also be offered a fixed repayment option, where you pay more than just the interest, but less than your full capital and interest repayment, for a fixed period. This means that you pay interest and some capital towards your mortgage.
All of these short-term alternative repayment arrangements are only suitable if you think that you will be able to return to meeting your full capital and interest repayments in the near future.
Some things to consider include:
- When the interest-only period ends, your lender will recalculate your mortgage repayments based on the remaining term and the outstanding mortgage balance. This means that your repayments will increase, as you now have a shorter term to pay back the outstanding mortgage balance.
- If you are offered a long term interest-only option, you may need to sell your property to pay the outstanding mortgage balance when the mortgage term expires.
Extending the term of the mortgage
This means that your term is extended, so you pay less each month (because you have spread the repayments over a longer period of time). It is important to note that your cost of credit will increase, as it will take you longer to clear your mortgage in full. Cost of credit is the difference between the amount that you borrow and the total amount that you will repay, including interest.
Some things to consider include:
- What age will you be when the mortgage expires?
- Do you have a compulsory retirement age, or can you continue to work beyond retirement age?
- If you retire before the mortgage has been paid off, will your pension or other income allow you to continue to pay the mortgage?
- Are you clear on the implications of the revised term? While you may be paying less each month, your cost of credit will increase over the extended mortgage term.
Capitalising arrears and interest
This alternative repayment arrangement adds the arrears on to the outstanding mortgage balance. The increased mortgage balance is then paid over the remaining term of the mortgage. This may increase your monthly payments. This arrangement may be combined with a term extension so that your monthly payments are less.
If you are not able to service your current mortgage payments, but your circumstances may improve in the future, you may be offered a split mortgage. The main aim of a split mortgage is to allow you to stay in your family home. A split mortgage arrangement splits the mortgage into 2 parts. You make agreed repayments on the first part of the mortgage and the second part is warehoused or set aside to be paid at a later date. Some lenders may write off part of the warehoused loan, some add interest to the warehoused part of the mortgage and others do not.
Some things to consider include:
- What percentage of any lump sum you may receive in the future must be paid towards the warehoused loan (for example, if you get an inheritance or a bonus)?
- What happens when the loan reaches maturity – do you have to sell the property to repay the outstanding mortgage balance? Or will you keep a right of tenure, where the outstanding debt will only be recovered after your death?
Reduction in the capital amount
Your bank may agree to reduce the overall amount outstanding on your mortgage.
If your lender does not offer you an alternative repayment arrangement, or if you cannot agree on one being offered, you may need to consider other options. Your lender must inform you in writing about the options that are available to you. These may include voluntary surrender, trading down, mortgage-to-rent or voluntary sale. You must be informed of the implications of each option and what will happen to any outstanding debt.
At this stage, you may be eligible for the new aid and advice scheme for people in serious mortgage arrears, being operated as part of Abhaile, the national Mortgage Arrears Resolution Service.
- Voluntary surrender of the property
You surrender the property to your lender. If there is a shortfall (the property sells for less than the outstanding mortgage balance) you remain liable for this and you will need to agree a repayment arrangement with your lender to deal with the shortfall.
- Trade-down mortgages
You may be able to sell your property and buy a new property of a lower value. It may be possible to add negative equity to the loan and secure it on the new property.
- Mortgage to rent
Under the national mortgage-to-rent scheme, people who are having trouble paying their mortgages to private lenders can switch from owning their home to renting their home as social tenants. If you take up the mortgage-to-rent option, you will no longer own your home or have any financial interest in it.
- Voluntary sale of the property
You sell the property yourself. If there is a shortfall (the property sells for less than the outstanding mortgage balance) you remain liable for this and you will need to agree a repayment arrangement with your lender to deal with the shortfall.
Your lender must also inform you in writing that you are now outside the MARP, and that repossession proceedings can follow either 3 months from the date the letter is issued or 8 months from the date your arrears arose, whichever date is later. You must be told about personal insolvency options, the importance of taking independent advice and your right to appeal or complain.
You can read our document on the MARP to get more detailed information on what happens if an alternative repayment arrangement is not agreed or if you break an alternative repayment arrangement.
Remember that, if you and your lender cannot come to an agreement on modifying or restructuring your mortgage, you can also consider a Personal Insolvency Arrangement (PIA). Under a PIA all of your debts, including your mortgage, are assessed and an agreed plan is made to repay your creditors. A PIA will need to be approved at a creditors’ meeting (by a qualified majority of creditors). You also can get more information on this option from backontrack.ie.
If you are in very serious financial difficulties, bankruptcy may also be an option.