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Sunday Times, A Question of Money - 1 December, 2013

Posted by Jill Kerby on December 01 2013 @ 09:00

Overpaying wont make you veer off trackers

 

FM writes from Dublin: My husband and I own a small business. In 2008 we took out a modest, 20 year tracker mortgage with the EBS. In June 2012, we were in a position to pay an additional sum of €300 on our monthly mortgage payment in order to bring down the capital sum we owed. We did this on condition that this was not a permanent over payment and we could keep the flexibility of the full 20 year repayment term and be able to raise and lower our payments so long as the capital sum was repaid by 2028.

This past July, we informed our lender we had a €20,000 lump sum that we wished to use to further reduce the outstanding capital. Our understanding with the lender was that we would still have the flexibility of the 20 year borrowing term.

In September we were able to repay another lump sum of €15,000 off the capital (under the same terms as before) but we also informed the EBS that we wanted to end the accelerated monthly payment and revert to – at least - our original payment of May 2012.

Problems have emerged.  A mortgage balance statement that includes columns of figures for the interest rate, the amount of interest and capital being paid, the remaining months outstanding appears to be littered with errors.  It now appears that we no longer have a 20 year mortgage that ends in 2028 but one that the lender insists ends in May 2022.  Now AIB is involved and say if we want to adjust our monthly repayments downwards at any time, we will have to apply for a mortgage extension from 2022. We are afraid we might lose our tracker if that happens.

We have been trying to sort this out for months. The banks say they are still “investigating” our claim that we never wanted to lose the 20 year term of the original loan and that we wanted to be able to adjust our payments instead. We have never missed a mortgage payment. Can you help?

You have sent me your file of correspondence and statements dating back to 2012, when you began accelerating your monthly payments and with your permission briefed Karl Deeter of Irish Mortgage Brokers and Financial Advisers.

According to Deeter, “Your reader’s first query is about her tracker loan. Accelerating payments or making lump sums under the Consumer Credit Act will not jeopardise her tracker mortgage.

“The letters and balance statements from the lender are confusing, contradictory and frankly don’t make a lot of sense. I wouldn’t bother continuing to engage with the EBS/AIB directly and suggest your reader take her case to the Financial Service Ombudsman for investigation and adjudication on whether this couple’s repayment term ends in 2028 or 2022.” 

You need to prepare your case well, with a clear schedule of events, the various calculations regarding new repayments and interest savings and all cross referenced to the relevant documentation and correspondence. You can then decide whether to engage an adviser to help you prepare your case with the Ombudsman or proceed alone. Good luck.

 

PD writes from Dublin: I am a recent widower.  I understand that the amount a child can inherit tax-free from each parent is €225,000. In her will, my wife left me her entire estate, mainly assets jointly held with me. What I would like to know is whether an executor can allocate a parent’s unused tax free inheritance threshold to the surviving spouse so that the €225,000 tax free inheritance limit can be added to the surviving spouses’ when they die?  That way, the full €450,000 could be left to the couple’s child upon the death of the surviving parent?

Unfortunately, the tax-free inheritance threshold between parents and children (or any other category of disponer and beneficiary) is not transferrable. Where a couple wishes to maximise the tax-free benefit to their children, they should plan for each parent to leave the maximum sum permitted under capital acquisition tax (CAT) regulations in their respective wills. 

This strategy only works where there is sufficient realisable assets to both make large bequests and permit the surviving spouse to maintain their lifestyle, which may or may not have been feasible in your case. Had it been possible, your wife could have left up to €225,000 tax free to her child in her will, though not at the expense of disinheriting you; as her legal spouse you would have been entitled to 50% of her estate under the Succession Act 1965.

Your query is the first of its kind that I’ve ever received and I can understand why you would favour it, especially if you only have one child who might otherwise face a very large CAT bill upon your death.  Hopefully it will remind others that it is important to get proper legal and tax advice when preparing a will.

 

GM writes from Kilkenny: I am 60 and only in receipt of a pension worth €30,000 per annum. PRSI is being deducted at 4% from the monthly payments, is this correct?  Last year a total of €1,200 in PRSI was deducted.

If you receive this €30,000 retirement income from membership of an

occupational fund or a private pension fund from which an annuity was

purchased, you should not be paying any PRSI.  However, if your income is

derived from a pension fund that was ARFed -that is switched to an Approved

Retirement Fund from which you are drawing down income, then it will be

subject to tax and PRSI until age 66. Once you turn 66, none of your income

- even unearned income from rents, savings or dividends will be subject to

the 4% PRSI charge.

 

 

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Sunday Times, Money Comment - 1 December, 2013

Posted by Jill Kerby on December 01 2013 @ 09:00

Your money is as safe as houses – in this case, hornets’ nests

 

 

Up to now I always thought that it was only eccentrics or cranky elderly bachelor famers, genetically hot-wired to keep their cash hidden from grasping relatives or the Revenue, who planted it under the floorboards.

 So it’s quite alarming to be told by otherwise sensible people, usually older ones unburdened by heavy mortgages or personal loans, that they are seriously considering physically taking their savings out of their bank or credit union deposit accounts and putting it somewhere they think would be more secure. (They should at least look into the new private, safe deposit vault service that opened recently in Dublin.)

They site negligible interest rates, penal Dirt rates and a total loss of confidence in the banks for such drastic action. Their don’t believe the government when it says that the cost of living is going up by less than 2%: their experience is that of food, transport, energy and health care costs are soaring while their state pension has been frozen for five years and private pensions are taking a hit from the pension levy and the restructuring of defined benefit schemes.

Pensioners may not be liable for the 41% Dirt on their savings if they are income tax exempt, but they probably wouldn’t be able to avoid a negative interest rate charge, if that went ahead.

The excuse the central bankers are giving is that this would force the still indebted banks to start lending out the cheap money they’ve been lent by the central bank and this would encourage more spending and ‘good’ inflation. Individual savers who faced a deposit charge would also spend, rather than hoard their money.

If historically low savings rates haven’t already sparked such spending binges, why should a fractional negative deposit rate? Older people are more likely to buy investment property here or abroad, in the (probably ill-judged) hope of getting a positive return than they are to hit the high street shops buying stuff they don’t need. 

We might be sinking into a deflationary economic hole, and we might be ridiculously complacent when it comes to higher taxation and austerity, but it is another thing to be able to force people to spend their money against their will.

There has never been such a thing as a risk-free return, not from deposits or bonds and certainly not from property or stocks and shares.  But I cannot remember a time when every possible destination for savings or surplus wealth has seemed so hazardous.

Every financial adviser I trust says the same thing: in a financial environment where all the old rules about prudent banking, sound money and risk versus reward are long gone, and the price of money is being endlessly manipulated, the best you can do is try to save or invest only with solvent institutions, diversify your assets and get the best tax advice you can afford.

The search continues by ACC and Danke Bank customers – and I’m one of them – for affordable, replacement current accounts before these banks close up shop next year.

In the full expectation that bank charges are only going in keep rising as the remaining banks scramble to clear their toxic balance sheets, I’ve been reminded of a super-cheap current account payment strategy that was popular long before anyone ever heard of the Celtic Tiger: the credit card.

Those were the days when the “flexible friend’ motif actually fit and the prudent bank customer paid all their personal and household bills and discretionary spending by credit card. 

The sizeable monthly card balance was then paid either by cash, by a single cheque or single direct debit from an account into which their monthly salary has been paid.

By paying everything by credit card - mortgage, groceries, utilities, insurance, petrol, the cardholder could take advantage of not just

56 days of free credit, but could avoid multiple mandate charges and cheque fees.

Withdrawing cash with a credit card isn’t free. Transaction fees daily interest applies so anyone looking into using a credit card to manage their spending will need a cash dispensing outlet. The nil cost credit union or a post office deposit account might be the answer.  An Post’s free bill pay service – see mybills.ie – is worth looking at as well from which you can automatically or manually pay off that big credit card balance every month.

Great sighs of relief are being heard in a couple dozen households this month as the first completed insolvency cases under the new Insolvency Act are finally emerging.

Some debtors have voluntarily given up their homes in exchange for total mortgage debt write-offs; others have worked out deal with their banks to write off only a portion of their mortgage and other unsecured debts in exchange for keeping them. 

This month, with the new bankruptcy act finally being enacted, the first bankruptcy cases are also expected to be agreed, resulting in the eventually writing off of all debts for those people.

That the banks appear to be acknowledging that mortgage shortfalls may have to written off in some cases is certainly good news. But the successful completion of the first debt relief notices (DRN), and especially the debt settlement arrangements (DSA) and personal insolvency arrangements (PIA) still only represent a fraction of debtors who need to be rid of their crushing debt burdens.

For every successful DSA or PIA (the latter involving secured mortgage debt) there could be up to six other failed applicants, say insolvency experts. Most people they meet simply don’t have sufficient assets to be eligible to make a successful deal with their creditors and already live on less money than is permitted under the ISI’s household expenditure guideline.

For these people, bankruptcy is probably the most appropriate solution, say financial and legal advisers. Going bankrupt doesn’t automatically result in the loss of the family home (at least not one that is in heavy negative equity. What it does promise, is that the discharged bankrupt will be entirely debt free within three years.

The insolvency and bankruptcy process is explained at www.isi.gov.ie .

 

 

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