Interest Only Mortgage - Help..

Locana

Hi

I'm hoping someone can help me, please! Dad passed away last year, so expected mums mortage to be paid off. (Seems that due to his ill health over the years, they weren't able to get that kind of insurance) Anyhoo, I subsequently found out that their mortage was interest only, and is due to end in about 6 years (mum is being vague, think shes worried). Mum is 61 years old and earning around 13,000, plus her pension and rents a room out (80 per week). Unsure of total income.

What are the options when the mortgage comes to an end?

Mortgage is 91K and property is worth about £360k.. She also has a 'gap' of about 40k payable when she sells or maybe on death or maybe even when the term ends, Im not really sure about that bit or what it is.

Am I thinking she has to find 131k? (91 plus 40) Are there any other options? If it comes to it is there anything I can do, like take on a mortgage myself and do a repayment one?

Thanks
Lorraine

Thrugelmir

Start planning now to downsize and clear the mortgage. Then your mum can look forward to a comfortable retirement.

The_J

What is this gap of 40k? Sounds like she just needs to find 91k.

You need to take the bull by the horns, she cannot be vague.

Locana

Hi

Is that the only way? To downsize? Are you saying we need to start saving and that paying it off at the end of the term is the only option, by selling or a lump sum? We dont really want to lose the house, for various reasons..

Thanks

Locana

Im not sure what this gap is, could it be that she received around the same amount just after Dad passed, and that she needed to use this to pay the gap? Of course she bloomin didnt, but has said that she has acquired insuarnce to cover that 'gap' if something happens to her. Could that be something to do with an endowment? She was due to get that money back around October this year, or if one of them passed, whatever was sooner.. Incidently, her insurance to pay off the mortgage if anything happens to her is also due to expire in October... Coincidence?

Thanks
Lo

The_J

No it's not the only way, Thrugelmir doesn't know anything about mortgages and advocates a 0 risk policy in his advice. He wants us all to live in padded cells and eat only pulped food to avoid choking.

If it's just 91k there might be something you can do possibly by herself, possibly with you added on (do you have your own mortgage, how much do you earn, do you have any siblings?).

That gap sounds like an endowment which, if it pays 40k, will reduce the mortgage from 91k to 51k (or from 131k to 91k depending on what is the actual truth).

You need to get a grip on it asap and find out the details, putting off IO discussions will lose the house.

Locana

Ok, so she spent that £40k..... So its 131k that would be outstanding.

Im hoping to buy in the next six months, I have 80k for deposit and house around here are around 175k. I really do want to buy a property. I earn £35,000 pa and my sister works part time and earns around £400pcm. I suppose in about 5 years I would hopfully have about 70% equity on my home, assuming the prices around here will rise in that time, I may have a bit more.. What does IO mean?

Thanks
Lorraine

LLouiseR

If there is an endownment policy it may be worth checking if it was mis-sold

Locana

Even if she has accepted and spent it? I'll bring that up with her...

The_J

OK, so it sounds like she had an endowment (which is an investment product AND a life insurance policy) however this is usually taken out in joint names so there should have been a life payout? I expect that's what she means. What the hell could she have spent 40k on?

No point in her having insurance now, if she dies the property goes into her estate and you should probably sell it to pay off commitments.

IO = interest only. The mortgage is cheaper but doesn't decrease over time, you invest separately hoping that will return enough to pay off the mortgage. Endowments were such a policy but clearly they didn't pay enough (the scandal).

I didn't realise you don't have a property but that explains the uncertainty you have. It makes it difficult to find out the problem because your mother is clearly sticking her head in the sand and you aren't experienced enough with mortgages to know how to deal with it.

If you add yourself to that property you can kiss goodbye to getting your own place. That mortgage will count against the total amount you are able to borrow. Your sister doesn't really earn enough.

Financial advice is required (face to face with all 3 of you there), there are options but it's not looking pretty.

Locana

Thanks The J,

Honesty is what I needed. Me and my sister are dumbfounded about the 40k. Whenever we say something she says 'I bought a new kitchen didnt I?' We always knew she was bad with money, but boy we didnt expect this..

I dont want to kiss goodbye to getting my own place either, I have a family (me and DD) and I wouldnt be able to move in with her (well, live in harmony, love her to bits but her money attitude is infuriating), so thats out of the question... Sis has her own family too.

One more question, is she too old for a remortgage? Maybe a repayment one? Maybe no, or you would have said this...?!

Thanks
Lo