Mortgage help for the in-laws needed!

DizzleUK

I need some advice regarding a situation my in-laws have gotten themselves into with their mortgage.

MIL is 66 and FIL is 50 and both work full time.

They have a sub-prime interest only mortgage with a 4 year fixed term interest rate of 6.7%. The fixed term is up in June 2011. The actual mortgage term is 17 years, so thats up to June 2024.

There is no endowment policy or anything else in place to cover the capital repayment if they both survive the life of the mortgage.

FIL has a life insurance policy in place to pay off the mortgage in the event of his death, and that's it!

The intention is to leave the house to my partner when they have both died, and if that happens before 2024 then great (financially speaking).

My worry is what happens in every other circumstance, and the best way to sort out this potential timebomb now.

If, in 2024, they are both still alive, will they be able to carry on paying monthly interest payments, effectively keeping the mortgage running until FIL dies?

Is it a good idea to keep the status quo and then arrange a sale of the house to my partner a few months before the end of the term, using the sale to pay the mortgage off, assuming he can get a mortgage of his own?

Should my partner look into getting a mortgage nowish and have his parents pay the payments (effectively renting the house from him) until they die?

None of them want to lose the house as it has been in the family for a long time and they want to keep it that way.

The in laws are also on a DMP with Gregory Pennington to the tune of £25k. They only pay £130 a month, so it is unlikely to pay the debt off in their lifetime (as a couple of the creditors are still charging interest!)

I know its not a brilliant idea to secure unsecured debts, but would they not be better off doing this? The mortgage is for £101k and the house is worth around the £150k mark.

All 3 of them are financially ignorant (to put it politely) and have always lived on the live today, pay tomorrow philosophy and are now panicking as the situation slowly dawns on them.

MIL has Emphasema and Asthma and FIL is an alcoholic and his liver will probably pack up long before the mortgage finishes. In fact, he's banking on not living until he's 65 and the life insurance paying out on the house. Sod's Law dictates he'll live til 80+

Your best advice is much appreciated. I'll try to offer more info if you need it.

opinions4u

The option of selling up, repaying debt and renting until they drop should be considered at some stage.

DizzleUK

opinions4u wrote: »

The option of selling up, repaying debt and renting until they drop should be considered at some stage.

Yeah, I know, but I have to explore the options that allow them to keep the house first.

They can afford their payments at the moment, cashflow isn't a problem. I just want to know what'll happen if they both survive the mortgage. Will it stop and the lender will demand the capital, or will they extend the mortgage further? Or would they have to remortgage (considering they would be 80 and 65 at that point).

katsu

They should get a DMP with a free provider - CCCS, Payplan, CAB are all recommended by various people here. No point wasting money that could go towards their debts.

Can't comment on the mortgage, sorry, but just had to comment on the above.

margaretclare

I think this is complicated by the fact that it's a 'sub-prime' mortgage. I can only say - I don't know!

I was in this sort of position a few years ago, but I converted an interest-only mortgage to a repayment one, to run until I was 83. But, but, but.....this was with a normal mortgage lender. Sub-prime is an unknown quantity. Sorry!

DizzleUK

katsu wrote: »

They should get a DMP with a free provider - CCCS, Payplan, CAB are all recommended by various people here. No point wasting money that could go towards their debts.

Can't comment on the mortgage, sorry, but just had to comment on the above.

Yep, way ahead of you there! I've asked MIL to get a statement from GP to find out where they're at and then move it to CCCS.

magpiecottage

If they keep maintaining payments then the existing lender will not attempt to take possession until the end of the term.

Even then it is unlikely to if payments are maintained.

At that time, it may be possible to reschedule the loan onto a lifetime mortgage and simply allow interest to roll up until death (with a no negative equity guarantee) provided there is enough equity in the property (due to growth in value) to make this commercially viable for a lender.

If they secure unsecured debt, either by way of a second mortgage or adding it to the first one, the scope for doing is likely to be reduced.

margaretclare

No - never never never convert unsecured debt into secured. Don't do it!!!

getmore4less

£100k I/O

£25k DMP

So money is tight

MIL 66 working income? how long? pension?

FIL 50 working income? pension?

This look a very fragile situation.

Don't get a mortgage on the house and expect them to pay you they won't.

To keep this house someone is going to have to stump up £100k+

There is no house for your OH to inherit unless the FIL dies within the term of the life cover chances are they will need care before then, less than a years worth with the equity.

DizzleUK

Total income for the pair of them is around the £2.5k net per month, but MIL should really be looking at retiring soon and if she does, that would reduce income to around £1.6k per month.

I've already advised against securing the debts. I'm waiting for her to get an up to date balance from Greg Pen and then I'm going to sit down and work out what on earth they are doing with all that money each month!

The debts will be fairly easy for me to sort out and transfer over to CCCS, it's just that I'm not as experienced with mortgages as I am with unsecured debts and their in's and out's.

OH is panicking that the house is going to be lost as if it's happening next week rather than in 14 years time.

I suppose the logical thing is to get the mortgage converted to a repayment mortgage and see if they will extend the term to something like 20 years. In which case, is it worth doing that now, or waiting until the 4 year fixed term period is up?

getmore4less

A remortgage is probably not an option.

Whats the followon rate at the end of the fix.

£100k @ 6.7% £558 I/O 14y £920 20y £758

Both look unaffordable once MIL retires hope the follow on is low.

There is still the £25k unsecured

A more realistic target might be to aim to get the mortgage debt down to £50k and hope by then another plan can be hatched.

If they want the house to stay in the family then one option is they move out to rented and you buy it and move in