Short Term Arrangements

In this week’s article we discuss the advantages and disadvantages of short term arrangements that some lenders may be agreeable to after we negotiate with them on your behalf.

Interest only Restructure

You only pay the interest on your mortgage for a period of up to 12 months.

  • Advantage: Temporarily reduces your overall mortgage repayments for the period of the arrangement.
  • Disadvantage: As you have not made any capital repayments during the term of the arrangement your monthly repayments on the remaining term of the mortgage will increase.

Interest and part capital

You only pay the interest on your mortgage and part capital for a period of up to 12 months.

  • Advantage: Temporarily reduces your overall mortgage repayments for the period of the arrangement.
  • Disadvantage: As you have made reduced capital repayments during the term of the arrangement your monthly repayments on the remaining term of the mortgage will increase.

Temporary, partial or full moratorium

You defer paying all your capital and all or part of your interest mortgage repayments for a specified period of time.

  • Advantage: Allows you time to stabilise your financial position.
  • Disadvantage: As you have not paid all or part of your interest and all capital repayments during the term of the moratorium your monthly repayments on the remaining term of the mortgage will increase, once the temporary, partial or full moratorium expires.

Important things to consider on short term arrangements

During the period of the short-term repayment arrangement it is critical that you take the necessary steps to prioritise your mortgage repayments above all other debt to ensure that you are in a position to return to full capital and interest repayments on your mortgage. This may also include an adjustment on your monthly household expenditure. You may also need to renegotiate repayments on other debt such as an overdraft, credit card, or credit union loan. When any of the short-term repayment arrangements expire, KBC will re-calculate your repayments based on the outstanding capital balance and the unexpired term. If the term of the mortgage is not extended at this time, your mortgage repayments will be higher over the remaining term as the capital balance outstanding reduces at a slower pace than was originally agreed for your mortgage. The slower pace of capital paydown will increase the cost.