my pensioner mums mortgage dilemma

Oddgy

Hi - Ive posted here before but my mum is in a sticky situation and i thought id ask you guys if you can offer any advice? I hope so.

Back in July 2007, my mum downsized, selling her 4 bedroomed x council dwelling for a small bungalow. (155k sold for, bought bung at 151k). Although she only had a £13,000 remaning on her house, she took a new mortgage out for £30k, but this time, instead of repayment, it was an interest only, to fund the work that was needed on the bungalow as it did need quite a lot of money on it as it was very dated.

Anyway, the 30k was used to pay the remaining £13k back, and the rest was used to do it up. It has all gone now, the bungalow is now habitable, and she is comfortably living in it.

Which now brings us to the interest only issue. She is a pensioner and is on Pension Credit.

Her mortgage a month is £137.00 which she pays, but now pension credit has started to pay into her mortgage account £75.00p in July & £151 in August. Which means that her total balance is obvliously being over paid. I have heard that they pay the interest on mortgage accounts, and maybe the larger payments in the last two months are back payments as i think they will pay £35 a week. ( I think!)

She is on a 15 year interest only, 10 years @ 5.48% & then remaining 5 years at the SVR. (is this a good rate??!)

The questions i have are as follows: (Sorry i got there in the end - - just wanted to give you the history).

1), What happens to this extra money pension credit pay? Normally overpayments reduce the capital on a repayment mortgage, but as its interest only so this is baffling me). She did ring up - but the lady she spoke to at Nationwide said she didnt know what would happen as its not a repayment mortgage.

2). As my mum is 63, how easy do you think it would be now, to change her interest only mortgage to a repayment mortgage due to her age? As in 15 years time, she will need to give them £30k back and she doesnt have any savings at all and wont have either. She owns 80% of her house, so would it be possible at 77+yrs she can remortgage??

Thanks in advance....

EdInvestor

The DWP should pay the interest only. She could look into equity release (lifetime mortgage) if she wants a higher income.

https://www.ship-ltd.org

Oddgy

so, that must mean they should be meeting the 137 a month payment. So if mum still pays that too, then effectively she will be overpaying that. Is that allowed?

melvis

If your mam's tied into a product then she should be able to repay part of her mortgage each year (I know with Abbey it's 10% of the balance), you'd have to check the offer though. Your mam may need to inform the mortgage company that she wants the overpayments to be applied as capital reductions as on some accounts the overpayments can sit having no benefit waiting to be used for/reduced by future payments.

testertrev

Is it just me or is this irresponsible lending by Nationwide? and now the tax payer appears to be picking up the tab as well.

opinions4u

testertrev wrote: »

Is it just me or is this irresponsible lending by Nationwide? and now the tax payer appears to be picking up the tab as well.

If Mum earns state pension of £4,600 and gets £1,800 in pension credit she probably has a private pension to. Let's assume it's £3,600. Total income £10k x 3 = £30k. Fairly standard sort of income multiple so not a case of reckless lending.

As for the state paying some/all of the interest, how much rent would they have paid if the house wasn't owned?

To answer the question:

1) It should be treated as a reduction in capital if there's any overpayment, but this will depend on the mortgage. The payment should be interest only from the state, but they do odd things and pay peculiar amounts that will usuaully, over a year, add up to the interest payments.

2) Can she afford to go on to a repayment mortgage? If the answer is 'yes' then I would suggest keeping the interest only on the account and making overpayments by standing order IF THE LENDER ALLOWS. If the answer is 'no' then don't overpay.

3) Ask the lender what happens in 15 years time. I would expect an extension in term to be offered - but it depends on the product! I can't see Nationwide saying "hand over the keys or the cash" on a well conducted mortgage account!

4) The SVR at Nationwide is usually okay when compared to other lenders, but when the 10 years are up shop around. The market may be very different in 2018.

UK007BullDog

Some good points from the Opinions4U.

Nationwide lets you overpay up to £500 per month without penalties.

The extra paid in will be used to reduce the capital outstanding.

If your mom can afford to be on repayment, I think it would be around £260 per month then you can change it to an repayment by just paying a fee to get it changed.

Otherwise just set up a standing order and pay as much in everymonth (remember the limit of £500 per month). Then call Nationwide and tell them to use the extra to pay off towards the capital.

You can do all this yourself with your mom of course.

The rate of the 10 year fixed is OK. Unless interest rates drop to rock bottom which I cannot see there is no reason to remortgage. Plus with the overpayment the money owned for the last 5 years might be lower. Plus no point now fretting what will be in 10 years time.

dimbo61

oddgy your mum might be better off saving the overpayments into a cash ISA as she has no savings !
Check with pension credits about how much she is allowed to have in savings and still receive the credits.
If you put money away in ISA,s over the next ten years then you could pay off your mums mortgage when you have saved up the money and checked there is no ERC charges from NATIONWIDE.

Oddgy

Cheers for being so helpful. This gives me some thing to get my teeth in and at least there is some light at the end of the tunnel in options she has. As for the Cash Isa, this was our first thought - but she can only have 6k in savings before her pension credit is affected, so this isnt something we can do.

Thanks again.....

:-)

opinions4u

She could give it all to you instead, and then you use the money to pay off the mortgage when she pops her clogs.