Struggling homeowners taking interest-only loans
ALERT: Experts warn against quick fix as suicides linked to price crash
STRUGGLING homeowners are being encouraged by banks to switch to interest-only mortgages because of financial difficulties.
Up to 30,000 householders have decided to make the switch as a quick fix to their credit flow problems.
Brokers have warned that although the option might appear attractive, it substantially increases the cost of the mortgage in the long run.
If a householder has taken out a €300,000, 30-year mortgage with a 3pc interest rate, the total payments will have jumped by an additional €6,500 over the term of the loan.
The standard monthly repayment would be €1,264, whereas an interest-only payment would be €750 -- a saving of €514 per month as the repayment is reduced by 40pc.
Analysts have said that if a homeowner has an interest-only mortgage, they should reduce the mortgage term only by arranging regular overpayments of capital alongside the interest payments.
Chief executive of the Irish Brokers' Association Ciaran Phelan said that although switching to interest-only was often necessary, such a move was not ideal.
"People are increasing their costs over the longer term and on this basis are simply servicing the bank's assets," he said.
The news came as it was revealed that the collapse in the property market can be directly linked to suicide.
The Irish Property Council (IPC) said that many more deaths have resulted from the huge number of job losses, failed investments and financial difficulties of the past two years.
Recent figures from the Central Bank showed more than 28,000 homeowners are three months behind with mortgage repayments and some 19,185 of those are more than 180 days in arrears.
Separate figures have outlined that the number of home owners seeking mortgage interest relief has rocketed by more than 500pc since 2007.
Last year, almost 19,000 people applied for mortgage interest relief which is a huge increase on the 2007 figure of 3,700.
The mortgage interest supplement provides short-term income support to eligible people unable to meet mortgage interest repayments in respect of a house which is their sole place of residence.
The Financial Regulator said that as at end December 2009, there were almost 793,000 private residential mortgage accounts in Ireland for a combined worth of €118.3bn.
The Regulator also said there were just over 5,000 formal demands outstanding issued by lenders in December 2009 for debts totalling €69.4m, representing an increase of 12.6pc since the end of September 2009.
A total of 152 properties were repossessed during the December quarter, which included 17 properties that were voluntarily surrendered and 11 that were abandoned.