Possible Solutions to Home Mortgage Arrears
27th June 2019
There are many possible restructures or treatments available to borrowers who are in home mortgage arrears. Depending on a borrower's personal circumstances and financial capabilities, one or a combination of the below solutions may help them restructure their mortgage and return them to solvency.
It’s important to note that no two borrowers’ situations are the same and a resolution could be a hybrid combination of the solutions listed. A qualified and regulated professional working with Abhaile, such as a MABS Dedicated Mortgage Arrears (DMA) adviser or a Personal Insolvency Practitioners (PIP) will assess the details of a borrower’s situation to find the best combination available and keep them in their home, wherever possible.
In the limited circumstances where someone does have to surrender their home, they will be guided through the process with the aid of MABS to ensure they get the best available outcome. They will not be left to fend for themselves.
Arrears Capitalisation - This is an arrangement whereby some or all of the outstanding arrears are effectively added to the remaining balance, to be repaid over the life of the mortgage. A recent Central Bank mortgage arrears report finds arrears capitalisation to be the most popular arrangement, making up 34.7% or restructuring arrangements.
Interest Only - where the borrower only pays the full interest on the mortgage for a period of time. This payment will only cover the loan interest and does not have any effect on reducing the loan amount.
Mortgage to Rent (MTR) - Under MTR, a borrower gets to stay in their home and agrees to give ownership of the home to the MTR provider. This arrangement is entered into voluntarily and agreed between the borrower, their lender and the MTR provider. After five years have passed, the borrower may be given the option to buy the home back and regain ownership.
Reduced Payment - As part of an arrangement, a borrower may have reduced payments as part of the overall arrangement.
Split Mortgage - If a borrower is unable to service their current mortgage payments, but their financial circumstances are set to improve in the future (for example a pension lump sum payment), the borrower may be offered a split mortgage. Payments are agreed 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.
Temporary Interest Rate Reduction - Where the interest rate on the borrower's home loan (for non-tracker mortgages) can be reduced for a short period of time. This can sometimes be written into an agreement as part of a permanent statutory solution.
Trade Down Mortgage - where a borrower sells their existing home and trades down to a lower value property. Under this arrangement, part of the negative equity can be incorporated into the new home loan or “warehoused” until the borrower’s financial position improves.
Term Extension - If a borrower is experiencing difficulties making mortgage repayments, their lender may be willing to extend the term of the mortgage. This would reduce the amount a borrower pays back every month. But as the term of the mortgage will be longer, the borrower will pay more interest over the life of the loan.
As previously mentioned, it is not always possible to find a solution that will keep the borrower in their home. Thankfully these situations are limited and before any consideration is given to surrendering the home, a borrower should be sure they have investigated all the statutory solutions available to them through a PIP. Early engagement with the supports available will increase the chances of a positive outcome.
Assisted Voluntary Sale (AVS) - The bank provides support and assistance to the borrower to sell the property at the best-selling price while keeping the costs as low as possible.
Voluntary Surrender (VS) - The Borrower agrees to voluntarily hand over ownership of the property to the Bank. The Bank will actively market and sell the property in order to achieve the best sale price.
What should a borrower in mortgage arrears do?
A borrower in mortgage arrears has two options, they can approach their lender on their own and try to negotiate an arrangement, or they can access the professional services available FREE through Abhaile. It is extremely important borrowers get the right advice when it comes to any solution, as different lenders have different ways of dealing with all of the above.
Any deal achieved through an Abhaile professional will be affordable and return the borrower to solvency. This means that the monthly repayments will be measured against their personal circumstances and calculated on the borrower’s affordability using a legal tool called Reasonable Living Expenses. The resolution will be tailored to that borrower and is unique to them.
One thing a borrower should not do is to ignore the issue of mortgage arrears on their home. Help is available and the sooner this help is accessed, the better the chances of a positive outcome.
To learn more about the solutions listed, call the MABS Helpline on 0761 07 2000 to speak with a Dedicated Mortgage Arrears Adviser.