Alternative repayment arrangements for people in mortgage difficulty

If you are having difficulty paying the mortgage on your home, your lender may offer you an alternative repayment arrangement. Alternative repayment arrangements offer you different ways to pay your mortgage if you are in financial difficulty. For example, you might only pay the interest on the mortgage for a while, or you might extend the term of your mortgage to reduce your repayments. These arrangements are often called a mortgage restructure. The arrangements available from your lender may be part of the Mortgage Arrears Resolution Process (MARP) or outside it.

Your lender will look at your personal circumstances and choose an alternative repayment arrangement that they think is appropriate and sustainable for you. If your lender does not offer you an alternative repayment arrangement, or if you cannot agree on one, you may need to consider other options, such as selling the property or surrendering it to the lender.

You should consider the affordability and sustainability of the arrangement you are being offered. You will be signing a new mortgage contract and will be bound by its terms for the duration of the agreement.

Can I afford the alternative repayment arrangement?

When assessing if you can afford the proposed repayments, you should consider:

• 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 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

Most lenders have family finance budgeting tools on their websites that can help you work out if you can afford the arrangement being offered. MABS has a budget tool and the Insolvency Service of Ireland (ISI) has a reasonable living expenses calculator to help you with this. If your arragement is 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.

How sustainable is the arrangement I am being offered?

To assess whether you can keep up payments for the remaining term of the mortgage, you need to consider:

• What might change in your personal situation
• If future external changes will affect your ability to repay

It may be difficult to forecast into the future. But you can assess certain changes, for example, what level of interest rate increase you could manage.

Things to consider include:

• Your current and future income.
• Your current and future expenditure.
• Your age and stage in life. For example, your children 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.

The CPPC has a mortgage rate change calculator to help you with this.

Lenders may offer slightly different alternative repayment arrangements. There are short-term and long-term alternative repayment arrangements. Short-term arrangements have a specific duration and will expire. For example, a 6-month interest-only arrangement. Long-term arrangements may run for the term of the mortgage or extend its term. Below are some examples of alternative repayment arrangements.

Temporary deferral of payment

This is where you postpone your payments for an agreed amount of time. 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 you only pay the interest due on your loan and not the capital for a certain amount of time. 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. This may be done if you cannot afford the interest-only repayments. 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. This is 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.

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 mortgage term is extended. So, you pay less each month because you have spread the repayments over a longer period of time. The cost of your credit will increase if you extend your mortgage, as it will take you longer to pay 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.

If you are thinking about extending your mortgage there are some things you should consider including:

• 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 what happens due to 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 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.

Split mortgages

If you are not able to pay your current mortgage payments, but your circumstances may improve in the future, you may be offered a split mortgage. 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. The main aim of a split mortgage is to allow you to stay in your family home.

If you are offered a split mortgage you should consider:

• 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 the date it is scheduled to be paid in full? 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.

In general, you cannot be asked to change from an existing tracker mortgage to another mortgage type. But if the lender considers that the tracker interest rate is inappropriate and unsustainable for you, they may offer you an arrangement where you change from a tracker mortgage to another mortgage type. Your lender can only do this if the new arrangement is affordable and sustainable over the long term.

The Central Bank's lending limits on mortgages do not apply to the restructuring of mortgages.

Trial arrangements

Some lenders may approve a trial arrangement before finalising the arrangement. 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.

Alternative repayment arrangements under the MARP

If you are being offered an alternative repayment arrangement under the Mortgage Arrears Resolution Process (MARP), you must always get:

A clear written explanation of how the alternative repayment arrangement works

• The proposed new repayment amount
• The term of the arrangement
• The impact on the mortgage term
• The outstanding balance
• The existing arrears
• Information on how interest will be applied to your mortgage loan account as a result of this arrangement
• Information on how the arrangement will be reported to the Irish Credit Bureau and the subsequent impact on your credit record
• Information on your right to appeal the lender’s decision, including how to submit an appeal

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 MABS.ie. The Abhaile scheme has a separate panel of accountants (pdf) that also provide free financial advice.

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
• Voluntary sale

You must be informed of the implications of each option and what will happen to any outstanding debt. 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 may also be able to get advice and support under the Abhaile scheme.

Voluntary surrender of the property

You surrender the property to your lender. If the property sells for less than the outstanding mortgage balance, you still owe the balance. You will need to agree a repayment arrangement with your lender to deal with this amount.

Trade-down mortgages

You may be able to sell your property and buy a new property that costs less. 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 the property sells for less than the outstanding mortgage balance, you remain liable for this. You will need to agree a repayment arrangement with your lender to deal with this amount.

Personal Insolvency Arrangements (PIA) and bankruptcy

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 needs to be approved at a creditors’ meeting (by a qualified majority of creditors). If you are in very serious financial difficulties, bankruptcy may also be an option.

If you are refused an alternative repayment arrangement, or you reject the arrangement being offered, you can appeal the decision to your lender’s Appeals Board. The appeal must be decided within 40 business days of being received. The lender must write to you within 5 business days of this, to tell you the decision of the Appeals Board and explain the terms of any offer being made.

If you are not happy with the lender’s treatment of your case, you can complain to the lender under the Central Bank’s Consumer Protection Code 2012.

If you are not happy with the outcome of an appeal or complaint, you can refer it to the Financial Services and Pensions Ombudsman.