Mortgage Critical Illness Payout Not Enough to Cover Outstanding Mortgage-Advice Plse

Mulchey

Hi,
I became disabled due to rare brain condition (1 in 1000 apparently!) and there's no magic cure so that its. Needless to say I am now unable to walk, drive, laugh too much or work.

My family and I have been claiming benefits (Income Support/DLA etc including Mortgage IS payments) since my diagnosis (we have two kids btw)

I have just found out that a critical illness policy that I took out to cover my mortgage is going to pay out ( it took 7 months to assess my claim).....up till now it sounds great.....However....

.... it appears that the CI payout will not cover the entire amount outstanding on our mortgage - we owe £93K approx and payout is £83K. This is because we remortgaged and couldnt afford the increase in the premiums (and we thought that we were never ever going to need it anyway.....!!!!:mad: )

So my question is can anyone advise me about my options. Or has anyone been in a similar situation?

We dont have enough savings to cover the shortfall and we dont want to "keep" the money as our benefits will be stopped; besides its meant to pay our mortgage.

The way I see it I've got nothing to loose by asking our Building Society to accept the £83K as full payment and hope they will write off the rest, BUT if they dont do this, what are our options?

All advice is greatly appreciated.

Thanks,
Mulchey

minimike2

Why would they accept it? If they dont get the rest, they have security over the property and would just reposses you to get back what they owe.

Have you considered downsizing to pay the remainder off?

sim11

if you have been on benefits for 9 months i was under the impression that the interest part of the £10000 left owing would be paid for you? worth looking into!

Mulchey

Well...downsizing is not an option. I couldnt get a 2 bedroom flat for less than £150K where I live. And its a council estate in the Midlands.

And yes the DWP do pay the interest portion of the mortgage. We have to pay the capital ourselves. The payment only applies to monthly mortgage payment not the total amount of mortgage. So if we pay off a large amount of capital with the policy the DWP pay less interest but our capital repayment goes up to the point where we dont have enough money coming in to pay it....i think

I have worked my butt off for 20 years and now I risk loosing my home over £10K. I was pleased when i got the payout but now I'm not so sure....

lisyloo

but our capital repayment goes up to the point where we dont have enough money coming in to pay it....i think

This just doesn't sound right.
If you capital is £10K and not £93K then your capital repayment should go DOWN significantly.

What term is your mortgage on and what is the rate?

I think you need to check the sums as a £10K mortgage is tiny and ought to be afffordable even on low income.

If you can say the term and rate then we can do some calculations, or post up what you think the maths is.
Hopefully you are worrying unnecessarily and we can put your mind at ease.

Debt_Free_Chick

Don't you just take the £83k and pay it off your mortgage? This would leave £10k outstanding. As you've been paying the repayments on a £93k mortgage so far, surely you could afford the repayments on a £10k mortgage instead?

benood

I don't think you've anything to lose by asking the BS to compassionately write off the balance - a long shot but they might take a view - potentially dreadful publicity to repossess someone in your condition and they may have made a good profit on the mortgage to date. Many other clients wouldn't have had even partial critical illness cover.

Otherwise you could probably remortgage the 10k easily for interest only at about £50 pcm which could then be paid through benefits. You could pay down the balance bit by bit.

jediknightwarrior

As already pointed out do not worry. This should workout ok for you.

Is the mortgage in joint names? How old are you and if in joint names does your partner/spouse work?

One option would be to ask your mortgage lender to switch your mortgage to interest only. This way DWP will pay the interest and you will have nothing further to pay in the short term.

Then, for example if you are 45ish, you could ask your lender set the mortgage term as 20 years. This means you could repay the £10,000 in 240 monthly instalments of £41.67.

jediknightwarrior

Sorry I'm at work and didn't get chance to finish my post.

Some people will disagree with this. However, another option would be to find out how much saving you can have without it effecting your benefits.

Say it was £16000. You would reduce your mortgage by £57000 leaving you with a debt of £26000. Again DWP will pay the interest.

You place the £16000 in to a high interest savings account and transfer it into a cash ISA each year. At 5% your £16000 with grow to just over £42000 over the 20 years. This will allow you to repay your outstanding mortgage of £26000 and still have £16000 in saving.

This option will also have saved you £41.67 monthly.

Mulchey

Thanks for all your suggestions. I'm trying not to worry, and I should be greatful the the CI is paying out; but its taken almost 12 months to get the benefit situation sorted and i dont want to rock the boat again. Plus with my current "brain" problem thinking straight isnt my number one talent at the moment! Hence the reason I didnt think that our capital repayment would go down:o !

I have detailed the figures below:

Original loan - £100,000
Interest Rate - 5.49 Fixed for 5 years (finishes 2010)
Loan Started - May 2005
Loan Should Finish - April 2028
Loan Time - 23 years (20 Remaining)
Currently Owe £93K approx
Am expecting Critical illness payment 0f £83K approx
DWP currently paying interest portion of monthly payment.

I have arranged to go see the BS Mortgage Advisor next week to discuss options. I'd really like to go into the meeting with an idea of how much we will still have to pay pcm for the remaining £10K ish. Assuming they dont agree to write the remainder off that is!

Thanks again everyone. My wife and I appreciate all you help.

sim11

be carefull you do not get charged an early redemption on your mortgage deal? ask about this. also i was under the impression you could hold onto this money for six months if it is to pay off a mortgage or buy another house without it affecting your benefits. How much interest would be added to it in that time? this you should look into at least it would give you some breathing space to decide what to do.