Permanent Mortgage - ever heard of it?

intruder_guy

Hi everyone,

Hope this is an appropriate post!

We're having a problem with a major lender and are getting stumped at every turn, so thought I might ask here as the advice is always superb.

Brief snapshot of the saga:

Parents home, mortgage in Dad's name.
Dad dies, leaving everything to Mum with a small mortgage.
More than enough funds in the estate to pay this off but Mum was advised to take out a specific type of mortgage, interest only ( not described at that time as permanent ).
Several years later my brother & I are examining Mum's financial affairs and we see this. We contact the lender and they explain that the mortgage they moved Mum to will mean that she could live another 20 years and still pay the monthly amount, yet still have the full capital amount to pay to end the mortgage.

My brother & I have repeatedly asked them to show where this was agreed as we would never have signed anything like this, nor would Mum.

They cannot produce any such document, saying it was agreed verbally.

This, we feel, is total nonsense. I have never heard of any mortgage being even amended verbally without documentation signed by the borrower.

We suggested that, since they can't provide any documents, that they calculate the amount Mum has paid over the time since Dad's death and offset this against the loan amount - it's actually only about 800 less than the outstanding figure. We said we'd pay the balance and that the matter should be closed as it would certainly appear that they had acted less than fairly, since no papers were signed. Our concern is that it does appear that they have abused the situation my Mum was in to maximise their benefits.

They're now stonewalling us totally - has anyone any suggestions on how best to approach this?

Many thanks for any advice, and again my apologies if this is somewhat inappropriate. I certainly don't mean it to be.

dougk_2

My advise is to get a solicitor involved as there should be a formal document of some sort - I am not convinced a verbal arrangement is good enough. Unless someone here knows different.

My theory is she changed to interest only instead of repayment. Therefore the capital will still be remaining and therefore the capital is still owed. Simply adding up the payments from the outstanding loan is not correct as you need to pay interest as well.

intruder_guy

Hi,

Thanks for the reply.

Our family solicitor who handled the will agrees there was no document signed to amend the mortgage. The original mortgage was repayment. The lender did suggest at the time of Dad's death that Mum change it but this was never agreed to in any way - it wouldn't have made any sense whatsoever to do this.

I'm aware that had she simply changed from repayment to interest that it's not as simple as adding up what's been paid, but that wasn't my point. My point was that the lender has changed her mortgage to their benefit, without any document being signed to show that my Mum agreed to this.

susanmc

Hi intruder_guy

I would try contacting the Financial Services Authority who regulate the sale of mortgages, insurance etc and making a complaint to them in writing.

intruder_guy

My apologies, I worded my original post badly.

My mum was actually told that rather than pay off her existing small mortgage, that the lender would transfer the mortgage to her on the same terms etc my father had.

This was an interest only mortgage, but had something like 3 years to run. However when the lender amended this they made it a permanent mortgage, ie Mum would have to pay the monthly interest charges until she died/sold the house, at which time obviously the mortgage would need paid off.

My badly worded point was that never at any time was anyone told this would be the case, it was assumed that since the mortgage Dad had was due to be settled in 3 years this one would be too. It was only when my brother & I were checking soe other matters that we noticed it was still being paid, and on questioning the lender they told it it was now a permanent mortgage.

So essentially Mum could stay at this house for another 25 years, but still have to pay off the full amount of the capital. This is ridiculous, and again I reiterate that there were no documents signed whatsoever to change the mortgage type.

Hope that makes things a bit clearer.

dunstonh

What you are describing is a Mortgage and roll-up plan. The interest is either paid for life or added to the debt. On death or when the property is sold, the debt it settled from the proceeds of the sale. Death does not clear the debt in itself. The sale of the property does that.

Now, when this was set up by your father, there would have been some documentation that would have been needed to be signed by your mother to agree to your father doing this.

The lender now has the choice of either passing on the liability to your mother, if she chooses to accept that or reposses the property and evict your mother.

If your father went direct to the provider to set this up, then they should have all the documentation required. If he did it through an advisor, then the documentation will be with the advisor. If you have any grounds for complaint, then you should go to the advisor first, if there is one.

Nothing on these schemes is done verbally so failure to support documentation favours yourselves. However, these schemes were not regulated by the FSA until 31st October 2004 and covers advice from that point onwards. So your solicitor may be the best approach to dealing with this

westernpromise

intruder_guy wrote:

My mum was actually told that rather than pay off her existing small mortgage, that the lender would transfer the mortgage to her on the same terms etc my father had.

This was an interest only mortgage, but had something like 3 years to run.

Ok, so presumably your dad had some means in mind to pay off the capital sum after those 3 years, correct?

However when the lender amended this they made it a permanent mortgage, ie Mum would have to pay the monthly interest charges until she died/sold the house, at which time obviously the mortgage would need paid off.

Right, so at the time your dad passed away, there were three things your mother could have done with the mortgage:-

- pay it off right away, using whatever capital your dad had put aside to do this
- transfer it to herself and pay it off after the 3 years had elapsed, in line with your dad's original schedule
- transfer it to herself and continue it indefinitely, so she didn't have to use that capital to repay it. The eventual sale of the house would fund repayment, and meanwhile, she gets to use that cash.

It sounds like they were trying to be helpful by offering her #3, i.e. "Don't worry about depleting your capital, we'll just run the mortgage indefinitely and your estate will eventually cover it."

If this is not what she wanted, then whether she is out of pocket or not depends on a couple of things.

First, how big's the mortgage? Next, what means of repaying it did your dad leave? If he left savings, endowment policy payouts, or other cash equal to or greater than the amount owing on the mortgage, then your mum is likely out of pocket. The return on the cash has probably been less than the rate charged on the mortgage.

Bear in mind that there might be some estate planning going on here. If the value of the estate is more than the inheritance tax threshold (I think it's around £240,000), there is tax due on it after her death. If you had a £300,000 estate with a £60,000 mortgage, you would dodge 40% tax on £60,000 because the mortgage comes off the value.

If that's not the case, then I would guess that the mortgage would have been transferred to your mother on its original terms unless documented otherwise. As there is no documentation, then I would think you could go back to the lender and say Look, we should have redeemed this mortgage however many years ago. We still have the cash we would have used to do so, and it's earned x in interest after tax, but meanwhile we have paid y in interest to you since then. We are thus out of pocket to the tune of x minus y, so we want to redeem the mortgage less that amount, unless you can produce a deed of variation or other paperwork showing we agreed to an indefinite extension.

My badly worded point was that never at any time was anyone told this would be the case, it was assumed that since the mortgage Dad had was due to be settled in 3 years this one would be too.

Well, yes, but it wouldn't happen automatically. There would have been a requets from the lender for the settlement amount, and I presume somewhere among the relevant paperwork was a note of where the money intended for this purpose was, no? If not, and there were and are no funds available with which to settle, then your dad would presumably have done what has since happened.

As I say, it's not necessarily a stupid way of doing things. If you had a large estate, i.e. you live south of Manchester and own a house, your heirs face a tax bill when your house is sold. You have to pay that tax before you're allowed to sell the house that gave rise to it. Farcical and cruel, but true. So if you had a £300k estate and you deliberately indebted it to the tune of £60k by taking out an interest-only mortgage, then gave away or spent the £60k, you'd escape the tax on it.

The cost of this is that £60k invested elsewhere is going to make you maybe 4% after tax while costing probably 5.5% or more. So doing this erodes about £900 a year in tax, but if you think it's going to save your kids £24,000 (40% of £60k) and you don't expect to live long you might think it worth doing.

Another point is that if you have a mortgage, the lender will normally store the title deeds to the house for you securely for a nominal fee. My parents have left £1k on their mortgage for this reason.