Sorting parent part and part mortgage

kgall

Hi,

I have posted previously about my parents financial difficulties that I am trying to help them with. We are now about to look at their mortgage.

Grateful if anybody can give me any initial advice.

The facts:

House value: £400k
Outstanding mortgage: £140k
Of which £70k is repayment and £70k is interest only
The mortgage ends when my father is 65 - November 2016 (my mother is a few years younger)
It is currently on a 1.99% fixed deal that ends in December this year
They currently pay £1,325 a month
They have two endowments, which they currently pay in to. Based on the minimum projections:
1. Matures December 2016 - £30k
2. Matures August 2017 - £12k

Looks like a complicated mess to me. Any advice much appreciated!

K

Annisele

I'm a little confused by your figures.

If £70k of the mortgage is repayment, and the mortgage is due to end in 2016, then the monthly payments just for the repayment part ought to be more than £1325 a month. (There are pretty much 50 months between now and then - and even if the repayment part of the mortgage had a 0% interest rate, that would mean payments of £1,400 a month just on the repayment part).

So - are you sure the outstanding amount is £140k? Is it possible that the repayment part of the mortgage was originally £70k and has since reduced?

getmore4less

why wasn't the mortgage looked at in conjuction with other issues?



review the endowments as an investement but don't forget they may have life cover.

What rate after Dec this year that will be critical.
£70k over 4.5 years + £70k I/O @1.99% is closer to £1500pm so looks like the cuurent payment may be low.

kgall

Thanks both. The mortgage was looked at initially as part of the wider problems (as per other threads) but is was best to leave it and sort other priorities.

I have checked the mortgage dates and it actualy finishes in Jan 2018. Sorry for the confusion, unfortunately I have to get the information from my parents and not directly.

Any thoughts as to what to do with the mortgage?

GMS

Could they sell and downsize? Reduce mortgage or buy for cash if the remainder would get them a place.

Wipe £1325 from monthly expenditure to use towards issues elsewhere.

Likely to increase significantly when the current fixed rate expires. You need to look at what rate it will go to. If they are struggling with current rate then only going to get harder

Annisele

Does that mean that the mortgage is due to finish a year and a bit after your Dad retires? Or will he continue in employment after 65?

I think a lot of this will depend on your parents' incomes, both now and post-retirement. If they won't have the income to support a mortgage post-retirement, they might be better off selling up now. If they will, there are more options.

Thrugelmir

On the basis that they still have "other" debt issues. Then selling the property and downsizing should be a primary consideration. As it would appear unlikely that they have the financial resource to meet any shortfall on the interest element of the mortgage. The released equity could then be used to settle and clear the other debt.

kgall

Thank you both. He will work past 65 so that is not a problem. Incomes are circa £50k and £55k, so cash flow is not awfull but they are also clearing CC debts (now 0% at least).

Ideally they would stay where they are for another two years, for family reasons. Best for me to point them in the direction of some brokers?

Thrugelmir

kgall wrote: »

Best for me to point them in the direction of some brokers?

With what aim in mind?

Given their credit records remortgaging will be no no from the majority of high street lenders.

What options do they have with their current lender?

kgall

I think the aim is to keep the current property for 2 years and then downsize - as by then it family arrangements (children leaving the nest) will make it easier to do.

Current provider (Natwest) has offered trackers from 2.99% to 3.49% depending on the arrangement fee. 3.49% is no fee.

Annisele

I think your parents either need to downsize or substantially reduce their spending - possibly both.

It sounds as though they're in pretty much this position:

Joint take home pay of approx £75k per year.
Unsecured debt of approx £27k.
Secured debt of £140k, currently costing about £16k per year.
Assets of a £400k house and a couple of endowments.

That doesn't look too bad to me - assuming that your parents are prepared to address whatever it was that caused them to be in so much debt to start with. Was it caused by redundancy/illness/something that's now gone away, or were they just spending more than they earned over a long period?

If they seriously knuckle down, they might be able to pay off most of the unsecured debt within a year or so. They'll then have the money they were spending on paying off their credit cards to put towards their mortgage.