AIB mortgage write down sends an important message

AIB is putting the needs of its customers first.

Announcing that it will write off some mortgage debt sends a very positive signal to mortgage holders.

According to information becoming available, the terms of the arrangement are as follows:

Customers deemed eligible for a split mortgage will have the loan broken into two parts, one which the customer will be expected to repay, the other will be ‘parked’ interest free, for settlement at a later date.

Taking the example of a mortgage holder that owes €300,000. Assuming the value of their property today is €200,000, then that €200,000 figure becomes the primary mortgage and the remaining €100,000 is parked.

According to first reports, AIB is understood to be open to a write off 20 percent of the primary mortgage. This means that up to €40,000 of the €200,000 could be written off immediately leaving qualifying mortgage holders servicing €160,000 instead of the original €300,000.

What is not known at this stage is how the loan term will be treated or if those with tracker mortgages will keep them. These are ‘devil in the detail’ issues that will increase or decrease the overall value of any debt write down deal.

But what is probably more important at this point is the shift in approach by AIB and the fact that it is becoming more accommodative to the situation of its customers, especially those struggling to service existing debts. This accommodative approach has been generally lacking since the mortgage crisis began in earnest towards the end of 2009. Hopefully other mortgage lenders will see merit in the AIB approach and be encouraged to follow their lead.

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