Sunday Independent: Should I avail of a mortgage moratorium?

Q.
Should I avail of a moratorium? Will it cost me more?

A.
I believe that the demand for moratoriums will have reduced drastically this week following the Government’s announcement of the Covid 19 Wage Subsidy Scheme where Revenue will pay 70% of employees salaries up to a limit if €410 weekly (ie €1,775 monthly) and the increase in the Covid unemployment benefit to €350 weekly (ie €1,515 monthly) from €203. Given that it’s very difficult to spend money at present, most people should be able to meet their monthly financial commitments in the short term based on the above supports.

If you have been made redundant and cannot meet your monthly repayment, contact your bank immediately and apply for a moratorium it.

If you qualify but don’t need it, then don’t rush into it.. this choice can occur where somebody has been made redundant, has a mortgage repayment of say €1,000 monthly but may have savings of say €20,000. In this instance you can use €3,000 of your savings to pay your mortgage for 3 months. The reason why some people won’t avail of the moratorium is that if they wish to borrow again in the next couple of years, availing of the moratorium may go against them in terms of being approved for a new mortgage. As it stands most banks will want you to be making full repayments for 2 years after a moratorium before they will approve a mortgage. Also.m, a borrower will pay more interest in the long term.

For example a borrower has €350,000 outstanding with 32 years remaining and a variable interest rate of 3.15%. Monthly payments are €1,447.83 monthly. If they don’t make payments for 3 months they will pay an additional €2,651 interest on the 3 months deferred payments of €4,546 over the remaining 31 years 9 months.

Read the full article by Charlie Weston in the Sunday Independent here –
https://www.independent.ie/business/personal-finance/your-questions-im-worried-stock-market-turmoil-has-hit-my-pension-should-i-be-taking-action-39120072.html


Q My job in catering has been lost as a result of the coronavirus. It’s a large company and we’re told the layoff is temporary. My mortgage is with AIB and they are offering a three-month payment holiday on the repayments. But I understand it’s another loan of sorts? Should I take it or continue to pay the mortgage out of savings? My wife is still working full time and we could afford to do this. The payments are €1,240 p.m. and we have 16 years left on the loan.

A The mortgage moratorium has been billed as a bit of a payment ‘holiday’. It is no such thing. All that will happen is the three months’ payments will be rolled up and added on to the end of your loan, extending out the term. This has the effect of rolled up interest too, so the sums should be done very carefully before you decide.

Joey Sheahan, author of The Mortgage Coach, says: “As your wife is still employed and you can afford to meet the monthly repayment, I would strongly advise to continue making it. If your wife was not working and you did not have any savings, then you may not have a choice but to avail of a payment holiday/moratorium.

“The word ‘holiday’ indicates a pleasant experience, however anyone who avails of a moratorium will ultimately pay more interest over the life of their mortgage as you are deferring repayments of €3,720 in your case. Additional interest of around €968 would be paid on €3,720 over 16 years, assuming an interest rate of say three per cent. Another factor in making a decision on this is if you are planning on applying for a new mortgage in the future (for example if you were to switch your existing mortgage or move house).

“Based on current credit policy, which each bank sets on its own, some banks may not approve your new mortgage application if you have availed of an alternative repayment arrangement (which would include a moratorium/payment holiday) within the two years prior to applying for a new mortgage.”

So, do your own sums, but also ask the bank to outline, specifically, in writing exactly what it will cost you before committing.


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