Borrowers who have availed of a payment break on their home loan during the Covid-19 crisis can expect to pay up to €4,500 in additional costs on their mortgages, an Oireachtas committee has been told.
This emerges from correspondence this month from four of the main retail banks – AIB, Bank of Ireland, Permanent TSB and Ulster Bank – to the Oireachtas Special Committee on Covid-19 Response.
In a letter dated July 21st, Ulster Bank told the committee that a borrower with a balance of €250,000, an interest rate of 2.5 per cent and 30 years left on their mortgage would pay an additional €4,468 by extending the term of their loan by the maximum six months allowed. This reduces to € 2,502 if the borrower pays off the balance over the normal term of the loan.
Credit rating
Ulster Bank has agreed 12,000 mortgage payment breaks since March. "A payment break allows for monthly repayments of capital and interest to be temporarily deferred/suspended for an agreed period of time (initially up to three months) without any negative impact on the borrower's credit rating," Ulster Bank chief executive Jane Howard said.
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Permanent TSB chief executive Eamonn Crowley said the average home loan in receipt of a payment break had an outstanding balance of €140,000, with an interest rate of 2.75 per cent and 16 years until maturity.
“Were a customer with such a loan simply to extend the life of the mortgage by the length of the payment break, then the impact of a three-month payment break would be an increase of €6 in their monthly repayments over the remaining term of the loan,” he said. This equates to about €1,152.
In its response, AIB said the average mortgage balance of customers who took payment breaks was €136,784, with a remaining term of 16 years, based on the average interest rate of 2.58 per cent.
Loan term
Those availing of a three-month break could expect to pay an additional €583 by repaying the money over the original term of the loan, and €1,091 by extending the term. Those on a six-month break would pay an additional €1,168 and €2,190 respectively.
Some 23,801 customer mortgage accounts had been granted a payment break, AIB told the committee.
Bank of Ireland chief executive Francesca McDonagh said it had received up to 1,000 requests a day from customers for a payment break. As of July 3rd, the bank had granted more than 20,200 breaks on home loans.
She said it was “important” the bank continued to charge interest on mortgages during the break period. “There are costs associated with the provision of mortgage payment breaks and our approach also ensures that we can viably offer these important breaks to customers when they need them.”
Ms McDonagh said the bank had also “increased the amount earmarked for residential development lending by €400 million to a total of €2 billion”.
