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Saturday 22 September 2018

Dan White: How can I reduce my burden as I battle to pay two mortgages?

Dan answers your financial questions

I TOOK out on my own a two-year fixed mortgage in mid-2009 for €260,000 at a rate of 2.8pc with AIB. The repayment period was 32 years.

The fixed-rate period is about to elapse in the next week or so and I was looking for your advice as to whether I should fix with AIB and, if so, for how long – or go to a variable rate? Is it also possible to change to an alternative financial institution that offers a better package?

I also have a small mortgage for another property of about €40,000 with Permanent TSB at a variable rate.

It seems that this rate is being increased every month and at the moment is over 5pc!

I’m not sure if it is possible to amalgamate both mortgages together at one rate but I’m finding it very difficult to keep up payments on both mortgages. My salary is about €45,000.

CONOR

If Conor moves from a fixed rate to a variable rate with AIB his interest rate will increase from its current 2.8pc to somewhere between 3.09pc to 3.49pc depending on Conor's loan-to-value ratio, i.e. what proportion of the property's value is represented by the outstanding mortgage. Given that Conor's mortgage is only two years old my reckoning is that he can expect to end up paying the 3.49pc rate.

Unfortunately for Conor, switching to a new fixed rate would be very, very expensive. A three-year fixed rate would cost him 4.88pc while a five-year fixed rate would set him back a whopping 5.35pc. And as for transferring his mortgage to another financial institution, as they say in New York, fuhgeddaboudit. Most financial institutions just aren't interested in taking on new mortgage business. Conor, whether he likes it or not, is effectively stuck with AIB.

Stuck between a rock and a hard place that is. With the ECB set to push up official eurozone interest rates next month and several further rate increases likely over the next year, sticking with variable rates almost certainly isn't a good idea. And that's before AIB follows the example of Permanent TSB and seeks to recover higher wholesale funding costs from its mortgage customers.

Unfortunately, moving from his current fixed rate to a new one would result in a punishing increase in Conor's monthly repayments. By my calculation if he moved to a new three-year fixed rate his monthly repayments would jump from €1,026 per month to €1,339. With Conor already struggling to meet his monthly repayments how could he possibly cope with a €313 monthly increase?

Which is almost certainly where the second property comes in. While Conor provides no details, my guess is that at just €40,000 his second mortgage is an old one. This should mean that, even after the fall in property prices, the second property is worth more, perhaps considerably more, than the mortgage outstanding on it. If this is in fact the case then Conor should seriously consider selling this second property and using the proceeds to reduce the amount which he owes on his two mortgages.

I have some money on deposit with ICS Building Society, which is owned by Bank of Ireland. Bank of Ireland were supposed to be selling ICS but now I read that they have changed their minds. Is this a good or bad thing and is my money safe?

Fred

Last week, Bank of Ireland announced that it was scrapping its plans to sell its ICS Building Society subsidiary.

With ICS having €4bn of deposits on its books and Bank of Ireland seeking to raise the proportion of its loan book financed by retail deposits, Bank of Ireland belatedly recognised that it made no sense for it to sell ICS. This is almost certainly good news for Fred and the other ICS depositors as Bank of Ireland is by far the financially-strongest of the Irish-owned banks.

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