How a Personal Insolvency Arrangement (PIA) Can Reduce Your MortgageApril 23, 2018
Not sure what a personal insolvency arrangement is or just intrigued by the rather promising title of this post?
Either way, welcome to this new Insolvency Help article on how a personal insolvency arrangement (PIA) can help you reduce your mortgage, protect your home and deal with your financial difficulties.
Negative equity following the financial crash 10 years ago was a huge issue across Ireland, especially so in Dublin. Whilst house prices have been rising strongly over the last year or two many homeowners still find themselves in negative equity. Not only that but they are struggling to pay the often huge mortgages they took out in the heady pre-crash days.
If your home is in negative equity and you’re struggling to pay your mortgage and other debts, then hopefully this blog post will help you navigate a difficult situation and get your finances back on track.
What is a personal insolvency arrangement (PIA)?
A personal insolvency arrangement is a court-approved agreement between a homeowner and all their creditors (the people/organisations that are owed money including the mortgage company). In order to access a PIA, you must take advice from a Personal Insolvency Practitioner (PIP).
The main aim of a personal insolvency arrangement is to safeguard the family home while writing off unmanageable debts. Where the home is in negative equity this will include immediately writing off most if not all of the negative equity i.e. reducing the total mortgage down to the current market value of the home. This means the monthly mortgage payments are reduced and repossession avoided.
Even where there is no negative equity it can be possible in a PIA to restructure the mortgage payments to make them more affordable each month by extending the repayment period and/or reducing the interest rate for a period of time.
Personal insolvency arrangements can also address unsecured debts such as credit cards and overdrafts.
Over the period of a PIA (usually 6 or 7 years) you pay only what you have left from your income after paying your (restructured) mortgage payments and your reasonable living expenses. At the end of your PIA, any remaining unsecured creditors are completely written off and you are returned to solvency.
Writing off the negative equity
Due to macroeconomic circumstances, the market value of properties does rise and fall. If the amount you owe is greater than the current market value, you are in negative equity. In other words, you owe more than what your property is worth.
If you’re in negative equity, it can be hard to get out of financial arrears. You won’t be able to sell your property to repay your creditors and you don’t have the money to pay your monthly bills such as your mortgage.
The number of Irish homeowners in negative equity has fallen steadily since 2012 but there are still more than 70,000 homeowners in this unfortunate position. That’s 10% of homeowners with a mortgage!
If you are one of these homeowners, I strongly advise you seek advice from a personal insolvency practitioner (IP). A personal IP can help you write off some or all of your negative equity.
If you are struggling to repay your mortgage and other monthly expenses, you have the potential to reduce your mortgage but you have to act swiftly.
House prices are up and though interest rates are still very low, it is only a matter of time before they bounce back up. About 75% of all mortgages in Ireland are trackers or standard variable rate mortgages.
So when the interest rates increase, so will the mortgage repayments for the 75%. And that can turn an affordable mortgage into an unaffordable one overnight.
I am in negative equity, and can’t afford my mortgage. What’s next?
House prices in Ireland are rising rapidly. This means the amount we can write off your mortgage is shrinking. If we can write off €100,000 today, we might only be able to write off €50,000 in a year or two.
If you are struggling to repay your mortgage, we strongly advise you to give us a call as soon as possible.
Turning a blind eye on missed payments can result in serious financial arrears, not to mention the immense stress and worry that comes with not being able to pay your bills on time and receiving unpleasant phone calls.
At Insolvency Help, we are part of the government-funded Abhaile Scheme, which allows homeowners in mortgage arrears and facing losing their home to get free expert advice from a Personal Insolvency Practitioner.
Give our team of personal insolvency experts a call today, and see if you are eligible to apply for a personal insolvency arrangement.