Ireland’s Guide To Money And Living

Debt matters

Posted July 22nd, 2010

Mortgage holders were today warned of the dangers of accepting interest only mortgages or moratoriums from their building society or lender as by doing so, they will be driven into deeper debt. This is according to Eugene McDarby, chairman of the Debt Management Association of Ireland (DMAI), which has been launched in Ireland to promote best practice in the debt management industry and protect the interests of cash-strapped consumers.

McDarby’s warning comes at a critical time for home owners who are set to be hit by the new mortgage interest hikes on the way. “Irish lenders are urging hard pressed consumers to consider ‘interest only’ mortgages as a solution to free up cash to pay other debts,” he says. “It misleads the homeowner into believing that by accepting lower repayments to free up cash, that it takes the pressure off. But it doesn’t. In fact it means that the average mortgage holder with a debt of EUR300,000 will be adding an estimated EUR17,000 over a two-year period, increasing the debt substantially.

“I find it astonishing that the lenders are taking this route instead of taking a more responsible approach to offering an attractive capital repayment scheme instead. Even worse we have come across cases where people who are making regular capital repayments are being sent ‘sales letters’ by lenders urging them to make the switch,” he continues. “Even more sinister are the letters being received by people with tracker mortgages to change over to interest only. The unsuspecting consumer, when they see that their monthly repayments are reduced, tend to jump at the chance to free up cash. They ought to be taken to task over this and, once and for all, come clean as to why they are doing this.”

McDarby claims that mortgage holders are being led into a false sense of security. “The cash freed when people enter into an interest only repayment scheme may result in lower monthly repayments, but the problem is that secondary debts will be prioritized at the expense of mortgage capital repayments. This is the biggest mistake a mortgage holder can make,” he says. “While we welcome that there is a real effort being made by Government independent financial advice must be sought by the consumer before any commitment to repaying debt is considered.

“In Ireland we can no longer borrow our way out of debt, we must budget our way through the period of debt. Debt managers help ordinary families get through this extremely stressful period in their lives and they must be facilitated by the lenders,” he concluded.