Mortgage payment difficulty advice

getmore4less

incogni2 wrote: »

Yes, the business is essentially bankrupt. The website and online backup costs are fairly minimal but the ADSL (which I also use personally/professional) and insurance are rather expensive.

If I wound the company up then I would no longer be in a position to seek the work I do, so I certainly wish to keep it going for as long as is possible.

I don't know if I could cancel the insurance (or some of the insurances) in order to save money. I'm currenty carrying Professional Indemnity (£500,000), Public/Product Liability (£1,000,000), Employers Liability (£10,000,000) and Business Contents (£10,000). Although the figure is the second lowest, the Professional Indemnity is the most expensive.

I may have legal obligations for some of this cover and there may still be claims against some of them (because this can go back years). I don't currently know if having been insured for the claim period is enough or whether I have to continue that cover.

I thought it was illegal for directors to knowingly run insolvent companies.

I think you seriously need to consider how much you are willing to inject to keep it going then when that runs out call it a day, how much do you need for say 3 or 6 months? Set a date inject the money and stick to it.

The current lack of employment opportunities? The fact that I’ve been looking for nearly 3 months without success? Clearly there may be some probabilistic correlation between the amount of time spent searching and the chance of finding but I’m certainly not clear as to that connection. After all, what are my chances, say, of getting in job within the next few months? 99%, 1%, somewhere in between? I don’t really know

How long before this zero work position was the busines declining? thats the date to consider as the starting point of decline, the 3 months with nothing + the decline period is a bit of an indicator that no amount of searching will find something so you may be better off getting a part time job and only searching for work part time(In place of watching football perhaps)

I would use as the chances of getting more work 0% as the starting point for planning with a fixed sum going intothe company and no more.

Then if that turns out to be the case seriously consider winding up and moving on, if work comes in then fine keep the funds in the comapny so it is solvent before drawing but have a fall back plan.


Back to the basic problem income V spends you need to budget based on the wifes income alone as that is a very likely senario for some time to come

Ok lets say you are going to go down the debt route.

IF you have no equity in the property then you should consider making sure all the unsecured debt is in your name so that when things go belly up and you need to go bankrupt you don't take your wife down with you.

(car comment removed, not relevent only one car)

incogni2

SouthCoast wrote: »

Just out of interest, but what cars do you both drive and are they paid for?

I drive an 8-year-old Fiat which I got for nothing from my parents when they were downsizing following retirement (a year ago). My wife doesn't drive (or more accurately she has not driven since she left the country of her birth many years ago). She will take lessons once we have the income to support it. It is the first car I've had (in this country) in 18 years and I only have it because I can see no other option.

incogni2

I thought it was illegal for directors to knowingly run insolvent companies.

Although I would have to defer to someone more knowledgeable, it is my understanding that the company is not insolvent. Our assets outweigh our liabilities which are currently very small.

I think you seriously need to consider how much you are willing to inject to keep it going then when that runs out call it a day, how much do you need for say 3 or 6 months? Set a date inject the money and stick to it.

I will not wind down the business under any currently foreseeable circumstances; it would leave me unable to seek contract work in the only profession for which I am trained. In any case, I would still need broadband and online backup, I would just be transferring the burden to my personal finances. If I did that and cancelled the business related insurance then maintaining the company in a dormant state indefinitely would be costing me literally nothing.

How long before this zero work position was the busines declining? thats the date to consider as the starting point of decline, the 3 months with nothing + the decline period is a bit of an indicator that no amount of searching will find something so you may be better off getting a part time job and only searching for work part time(In place of watching football perhaps)

Well, what is declining? When a year’s turnover is less than the previous years? If so, then the turnover for 2008-2009 may well probably be less than that for 2007-2008 which itself was more than 2006-2007 (which conversely was less than that for 2005-2006). Until November (i.e. if I had found immediate employment) it was projected that both turnover and profit would increase. With 7 months remaining in the company year, if I can find work for two (and a bit!) of those (at previous income levels) then the company will show approximately the same turnover as in the previous year. Basically, we are five months into the corporate year and show 14K income which was all made during September/October.

IF you have no equity in the property then you should consider making sure all the unsecured debt is in your name so that when things go belly up and you need to go bankrupt you don't take your wife down with you.

Unfortunately, almost all current debt is in her name. I do not have sufficient credit for it to be in mine.

If the wife commutes by train then you probably only need one car you can drop her off and pick her up if you need it, you fund your extra car needs from the business when it is making money.

We only have one car and, although I don’t really need it, I have to pick her up and drop her off because she can’t drive.

getmore4less

They did offer to extend the term of the mortgage from 25 to 35 years. However, the small benefit to me (a reduction of less than £170) was counterbalanced by a huge increase in the eventual sum paid in terms of interest.

MIssed this earlier

It does not have to cost more overall, this is probably cheaper than the other debt you would take on and you can always overpay to catch up.

Cutting costs now it what is needed.

getmore4less

we are five months into the corporate year and show 14K income which was all made during September/October

Given that the wifes income covers most expences where has £14k gone in just 5 months.


Anoher question comes up have you actualy worked for a full year?

£7k pm should be enabling more like £70k per year.

incogni2

It does not have to cost more overall, this is probably cheaper than the other debt you would take on and you can always overpay to catch up.

Okay, sounds interesting. These are my calculations, which are liable to be flawed...

Current mortgage...
Loan amount: £236,099
Interest rate: 6.3%
Load period: 25 years
Monthly payment: £1564.78
Total payment: £469,433.37 (£233,334.37 of which is interest)

Extended mortgage...
Loan amount: £236,099
Interest rate: 6.3%
Loan period: 35 years
Monthly payment: £1394.11
Total payment: £585,526.30 (of which £349,427.30 is interest)

Clearly this is an over-simplification, assuming the same mortgage and rate for the entire term and taking 25/35 years rather than 24.x/34.x. However, on the face of it, I’ve achieved a payment reduction of £170.67 per month but, overall, I lose £116,092.93 (due to interest). Since this loss is across the whole 35 years, I’m losing around £276.41 per month.

If, however, at the end of the first year my circumstances have improved and I am able to overpay by £500 (the maximum the deal allows) across the remainder of the loan period, nominally 24 and 34 years but the term will be shortened by the overpayment. I’m also assuming that my circumstances have improved enough that I am able to afford to overpay either mortgage by the maximum allowed.

Current mortgage at the end of year 1...
Total payment so far: £18,777.34 (£14,759.54 in interest, £4,017.80 toward the principal)
Balance reduced to: £232,081.20

Extended mortgage at the end of year 1...
Total payment so far: £16,729.32 (£14,819.72 in interest, £1,909.60 toward the principal)
Balance reduced to: £234,189.40

[I then begin the overpayment...]

Current mortgage from start of year 2...
Monthly repayment: £2,064.78
Total payment (from now to end of term): £351,673.81
Total payment (from beginning): £370,451.15
Term (25) reduced by about 9.8 years (so mortgage-free in 15.2 years from start of year 1)

Extended mortgage from start of year 2...
Monthly repayment: £1,894.11
Total repayment (from now to end of term): £378.837.19
Total payment (from beginning): £395,566.51
Term (35) reduced by about 17.3 years (so mortgage-free in 17.7 years from start of year 1)

So, in fact I lose only £25,115.36. However, this loss is again across the entire term which has been reduced to 17.7 years, leaving the monthly loss as approximately £118.25.

incogni2

Given that the wifes income covers most expences where has £14k gone in just 5 months.

Yes, it does seem like a lot. Some of it went toward prior credit (buying a house is an expensive business in terms of surveyors, solicitors etc). More to repairs on the house to the council’s exacting requirements (work on the roof, some windows and the door to improve water/draft repelling abilities, a complete rewire to a fairly high spec since it can really only be done once). The house is Grade II listed and some of the work deemed necessary was not cheap. I also bought another aquarium which, with hindsight, was foolish but I didn’t have the foresight to have hindsight before the event, so to speak. Bought some household appliances and furniture because before we were renting furnished. Some work required on the car around the time of its MOT.

Some of this spending was, relatively necessary (dangerous electrics), and some less so. At the time I didn’t anticipate that it would take more than a few weeks to find work, so I wasn’t too concerned. As I’ve said before, my expectation based on prior experience was very different from reality.

Anoher question comes up have you actualy worked for a full year? £7k pm should be enabling more like £70k per year.

A good question. No, I worked for about 4-5 months of the previous company year. This was (or so I thought) by choice. I have previously been lucky enough to be in a position whereby I could decide how much money I needed and then simply get a job in order to earn it (and spend it).That is what I meant by spending driving income. I don’t deny that I’ve been in a great situation but that is over now (at least temporarily). It seemed to me, why earn more than I need? Since the company I was employed by went into liquidation due to the .com bubble bursting, I’ve worked intermittently, always from my home office - apart from 3 months spent commuting, during 2006-2007, when I wanted the money to buy something (a plasma tv, I believe) and couldn’t immediately find a position enabling me to work from home.

Yes, I could probably have earned £70K and still taken two months off (though obviously with no benefits and when I can’t take income as dividends, I also have to pay the employer’s, as well as the employee’s, NI contribution). Certainly a number of the contractors I was working with earned considerably more. Also, all my work has been via word of mouth and personal recommendation. Counting from my CV, I’ve had 12 different employers in the last 8 years, probably 16 or 17 short-term contracts (and those are just the ones I want people who read my CV to consider).

Amarillo

Incogni2, you remind me of us about 2 years ago. DH earns the same as your wife and I have a part time job, less than your income though. Our mortgage is a bit less than yours but not a huge amount and we also have a car that is paid for. We used to bumble along quite happily without really thinking much about money as long as we could pay for what we needed to each month.

Then one day out of the blue DH's boss turned round and said he couldn't pay him. We'd cleared all our debts other than the mortgage by then but had been living on the money put aside each month to pay his tax and at the point he said he couldn't pay us, we'd taken about 8k of the tax money and were faced with no real income and owing the tax money. It turned out to be a misunderstanding between his boss and the guy who funds the project and DH did get paid. But it didn't half give us a shock and we truly learned the lesson that just because we could pay our monthly lifestyle, it didn't mean we could actually afford it, a subtle difference but it can make the whole world of difference when your back is up against the wall.

Lesson truly learned here and we've turned our finances around so that we can live comfortably on DH's wage, have 6 months money in the bank in case something similar happens again and are much more in control of our money rather than it controlling us. All a bit rambled but I hope there might be something hidden in there somewhere which might just be of a tiny bit of help, maybe not at the moment but a little bit down the line .

getmore4less

incogni2 wrote: »

Okay, sounds interesting. These are my calculations, which are liable to be flawed...

Thats the basic idea,

One thing you need to take into account with not taking the extened term/mortgage reduction is what happens to the £170, since you don't actualy have the money you will be borrowing it. So not extending the loan involves another debt which you need to pay off first before you can over pay the mortgage when things improve.

getmore4less

incogni2 wrote: »

Yes, it does seem like a lot..........

All seems logical but even though you thought you were earning enough you were not, you have other debt besides the mortgage so even that last bit of work bringing in £14k was not enough to pay all that off, you were spending ahead of your earning.

Hopefully the lesson being learnt is you need to have longer term plans, have contingency for when things are not so good and spend into the income not as you currently do try to earn to the level of spends.

Build up a years pay within the business so you can get through lean times.
Working less so you don't pay some tax is a mugs game unless you are rich or are very sure of continuity of that income. Avoiding some of the tax/NI can be done with pension contributions which should be part of a long term plan.

What about longer term and retirement the more you earn and save now the fewer years you have to work overall.

I think a minimum you should aim to earn net each year is the same as the wife so you are at least contributing equaly, certainly looks like you have been living off her income for some time by choosing to be part time(unless she has some major personal spends). this net can include the longer term stuff like pensions.

You need the support and agreement of your wife for any choices you make
I think if you have not allready you should show the wife this thread