changing to interest only question

struggling-breadwinner

Hi, am with Santandair and they have said in principle we can change to interest only off our repayment for 1 year to help us out financially for a while as I am on enforced part time to avoid redundnacy consultation.

THey said I need a vehicle to replay the capital sum which I have cause I have 3 pensions. They said they need to see that it would clear the mortgage. The question I have is does that mean there has to be enough capital paid into the pensions NOW to clear the balance NOW or that the assumptions the pensions statements make about lump sum value on maturity would be sufficient - say in 20 years time - to clear the capital sum?

If it is the former I can't change to interest only as I have only paid in £43k in the aggregate. if it is the latter I have two figures in each pension statement., one assuming interest at say 5% and another assuming interest at say 9%. WHich one will the Santander go off for the sum capable of clearing the capital sum I am deferring

ta
x

yelf

No not now - if you had enough to pay it off now why have a mortgage? They may look at the difference between the 2, but as its only for a year i dont see what there problem is.

eenysmum

They will look at the payout on retirement and base it on that.
Just a word of caution, I had to switch to interest only for a while and was advised that it counts as arrears and affects your credit rating. I'm not with Santander though so not sure if this is across the board.

HelpWhereIcan

They should look at the final value of the pension - but only the Tax Free Lump sum element.

In other words, if your pension fund will be 100,000 at retirement, your maximum tax free cash will be £25,000 which is the figure that would be available to repay the mortgage.

tbh, I think the Abbey are going OTT in your case when you consider the reason you have requested the temporary switch to interest only.

Yes, they have to prove that they have considered your ability to repay the debt, but they are also under an obligation to treat all cases of difficulty with sympathy and I am a little surprised that they are treating a case like yours (where you can prove that your income has dropped through no fault of your own and that the drop is likely to be temporary) in the way that they are.

That is obviously treating every case in the same way (a tick box approach) rather than on it's merits and that directly contravenes the FSA's Treating customers Fairly initiative and

CML statement of practice - Handling of arrears and possessions

Section 1.2 on page 7 says (with regards to switching to interest only)

Each case should be considered on its merits and there should be a discussion with the customer as to what might suit their particular circumstances. For example, if their income is reduced but they can still afford to pay a monthly sum, extending the loan term might be appropriate. A change from repayment to interest-only might be appropriate for a short period of reduced income, for example, through job loss.
• Staff are trained to ensure that they can identify suitable options for customers and are aware of the limits of their authority. They should also know when to consult a supervisor for advice.

If you are young enough it could be that extending the term of your mortgage is the right thing anyway as it could close gap between your current payment and an interest only mortgage to a level where you are comfortable. It could also mean that you could get away with extending the term and switching part of the mortgage (that is covered by the pension plan) to interest only rather than all of it.

Provide them with the projections etc and I would have thought you will be ok; but read the document I have linked to and A practical guide to helping mortgage borrowers in financial difficulty so you are aware of how they are expected to act.

Good Luck

HelpWhereIcan

eenysmum wrote: »

Just a word of caution, I had to switch to interest only for a while and was advised that it counts as arrears and affects your credit rating.

This should never be the case at all when the switch to interest only is agreed. Your lender is incorrect to look at it this way and I would urge you to read the documents I linked to above and re-contact your lender.

struggling-breadwinner

yuk - i feel sick now! seriously ARREARS!!! I've never missed a payment on anything in my life never mind arrears!!!!
HelpWhereIcan - has this happened on an agreed change in your experience????
Thanks for the article - off to read it now - with a big drink

Mrs_Bumble

So are you looking to switch to interest only or down size as in your other post? If you are looking to sell and down size don't put yourself through this now, you say in your other post that you have 800 a month that just gets frittered away and so maybe it would be prudent to check your spending and slam the anchors on that, rather than bother with the interest only switch because what will you achieve.

No lender would register a switch to interest only as an arrears case, unless arrears were the reason that the case was switched to interest only. But from what you have said in your other thread the issue isn't this switch to interest only it is the fact that you do have money that is surplus per month but it gets frittered away and that is the issue that needs to be addressed. Switching to interest only will only exacerbate the issue with no real solution.