Big Step Ahead - Shall I?? Advice Needed Please

ksh123

Hi
I have been struggling with bad debts for about 15 months now and am currently only able to pay £1 per month to my various creditors - total bad debt £41000. I have defaults but no CCJs and so far after the first terrible few months my creditors have been putting up with the status quo probably because I am ill and they have realised that there has not been much else I could do.

I have a very small income made up of DLA and Incapacity benefit and a very small pension from the NHS, I am 54. there isn't any hope of my returning to any form of work in the forseeable future - tho maybe 1 day.....

I have a mortgage of £43k
Secured loan of £22k
and unsecured debts of £41k

I won't bother explaining how or why I got into this rdicidulous amount of debt suffice to say its all wrapped with my illness and foolishness.

A broker with whom I took out my last mortgage contacted me this week as I am about to come out of a lock-in with the Abbey - obviously he was looking for more business. I explained that things had changed radically since last we last did business and told him the whole sorry story.

He has come up with a plan which he believes will improve things - but I am scared as it means changing to an interest free mortgage for a period of at least 2 years and a huge mortgage. Although it will make me "debt" free.

The plan is a £85k mortgage over 20 years with Mortgage plc at 6.5% for 2 years, interest only. The repayments would be £470.91 pm approximately £63.15 less than I am paying now on my mortgage and secured loan. I may alos have a little equity left in my house - say £6k or so.

Getting rid of my creditors by paying full and finals would be great as would be getting rid of my secured loan which I only took out in a panic anyway and really can't afford.

But I am scared of being on an interest free mortgage because my house is the only thing I have that might one day give my daughter something. there is just the two of us. She is a student and will not be earning properly for at least 4 years or so. I don't want to be paying interest free forever.

I asked the broker "how I will pay this when the 2 years is up?" He said its just a matter of re-negotiating then.

Please note that when the ship started to sink I did contact CAB and the DAS etc and bankruptcy, IVAs etc have never been suitable for me. Although I have this equity in my house to support this new mortgage selling up and moving in to rented has never been an option for me because of my ill health. I have done all the other practical things like reducing outgoings etc.

So what do you think? Shall I struggle on as now (and it is a struggle, constantly and does not help my recovery) or shall I go for what seems to me a radical alternative?

All advice gratefully received. thanks for reading.

peb

I don't really like it as, theoretically, any Lender can at any time put you on a repayment mortgage - if they do that can you pay the full amount? There will probably be a condition that you will have to make arrangements (usually ISA etc) to repay at the end of the term and if the Lender asks for that evidence you will be unable to supply it. At the end of the 2 year fixed period what will the rate increase to? Can you afford it? then. if you wish again to remortgage your age will be taken into account as time goes on and less and less lenders will accept you. Also there are fees involved in remortgaging - presumably each time you can add them to your loan - you will have to borrow enough to cover your legal fees, valuation etc. Sorry to be pessimistic; maybe others will have a different slant on this. As you have mentioned the broker wants you to remortgage as he will then get his commision; Mortgages Plc are not the best of lenders to deal with.

gastfo

ksh123 wrote: »

He has come up with a plan which he believes will improve things - but I am scared as it means changing to an interest free mortgage for a period of at least 2 years and a huge mortgage. Although it will make me "debt" free.

His plan is to his advantage and profit. Just think of the commission he will receive for such a large mortgage, who guarantees you will be able to re-negotiate after 2yrs and having a mortgage is still debt.

ksh123 wrote: »

Please note that when the ship started to sink I did contact CAB and the DAS etc and bankruptcy, IVAs etc have never been suitable for me. Although I have this equity in my house to support this new mortgage selling up and moving in to rented has never been an option for me because of my ill health.

You have answered your own question, but you are afraid of the consequences. If your current income cannot support you, then you should sell the house, your largest liability (mortgage). Pay off the debts with the equity, but write "you offer to pay 25-50% of the debt before going bankrupt" (they will take this rather than get nothing) as full and final settlement.

With any money you have left purchase a smaller property that fits your needs and you will be debt free with lower outgoings. When things pick up, you can always move up.

lxpeanut

My first response is to say don't do it. Turning unsecured debt into secured debt is not a good idea also you would be taking on a mortgage that once the intrest only period is up you have no hope of paying.

petetidball

An interest only mortgage would help in the short term, but (not wanting to appear rude) at 54 do you really want to take on another 20 years of repayments? How would reaching pensionable age affect your benefits as well, as this could make the repayments difficult.

It does look good on paper, as the 85k would pay off most things in full, or probably everything in full and final settlements if your creditors were willing to accept your offers. But if you do pay interest only, you still need to find the money to pay the capital off when the mortgage term ends, so you may have to sell your house.

Basically it's swings and roundabouts. Would your current mortgage be much higher than it is now when the term ends? The other thing to think about is whether or not leaving a house for your daughter is really that important. If she's graduating in fours years, in six years time she'll probably be far better off than you and could buy the house off you!

Probably not much help, but those are my thoughts. Personally, I'd go for the interest only and pay off everything else that I could. May not be the MSE way, but I'd feel better knowing I had just one (albeit large) debt.

Crown

I really dont think its a good idea at all although if you cannot work I do not know a sensible solution.

All you will achieve is shifting the debt to a longer period. also the ENTIRE amount will be secured not just the Loan. This Broker is obviously only intestered in his commission. You will pay back tens of thousands of pounds in interst over 20 years and still will not have ANYTHING to show for it.

Have you thought of contacting the CAB to see if they can give you any more advice? You say that Bankruptcy is not an option but have you looked into this? I am no expert on this subject but maybe there could a way to stay in your home with some sort of charging order?

Good luck with it. sorry I cant offer any more advice

ksh123

[/QUOTE]You have answered your own question, but you are afraid of the consequences. If your current income cannot support you, then you should sell the house, your largest liability (mortgage). Pay off the debts with the equity, but write "you offer to pay 25-50% of the debt before going bankrupt" (they will take this rather than get nothing) as full and final settlement.

With any money you have left purchase a smaller property that fits your needs and you will be debt free with lower outgoings. When things pick up, you can always move up.

Check out the film in my sig to see why this is happening and let me know if you want to do more about it and learn more about your options.[/QUOTE]

Thank you for your advice gastfo but a smaller house would be a rabbit hutch - no wait, this is the rabbit hutch! So it would be a hamster cage then! They don't actually make houses smaller than this as far as I know - well at least that made me smile

I think you may have missed the bit about me not being able to moving house because of health - I could no more sell up and move - and have clinicians who back me up on that - than Captain the English footie team

lynzpower

hi there, hugs, sounds like life is pretty tough for you right now.

I would seek advice about bankrupcy. being bankrupt doesnt always mean losign your home, you are on benefits anyhow with little chance of earning again, the OR wont take your state benefits from you.

Does anyone know waht the answer is to this.

ksh123

Crown wrote: »

I really dont think its a good idea at all although if you cannot work I do not know a sensible solution.

All you will achieve is shifting the debt to a longer period. also the ENTIRE amount will be secured not just the Loan. This Broker is obviously only intestered in his commission. You will pay back tens of thousands of pounds in interst over 20 years and still will not have ANYTHING to show for it.

Have you thought of contacting the CAB to see if they can give you any more advice? You say that Bankruptcy is not an option but have you looked into this? I am no expert on this subject but maybe there could a way to stay in your home with some sort of charging order?

Good luck with it. sorry I cant offer any more advice

Thanks to all for the advice. Most of you have echoed my own gut instinct. Crown you are right when you say that there isn't a sensible soloution.
Re Bankruptcy, IVAs etc yes, the CAB and I looked in to these things in full and there was no way to make them work for me.

Crown

Morning KSH123,

I didnt mean that there wasnt any solution. there is always something Just meant I didnt want to give you wrong info.

It looks like you are already thinking it is not a good idea to consolidate. My family have consolidated in the past and instead of now having a care free retirement my mother still works as what was just £25k of debts about 20 years ago are now a £110,000 Mortgage.

I'm thinking that medical grounds may be a way of staying in your home but I have no idea of where to go. once again good luck to you.

ksh123

Crown wrote: »

Morning KSH123,

I didnt mean that there wasnt any solution. there is always something Just meant I didnt want to give you wrong info.

It looks like you are already thinking it is not a good idea to consolidate. My family have consolidated in the past and instead of now having a care free retirement my mother still works as what was just £25k of debts about 20 years ago are now a £110,000 Mortgage.

I'm thinking that medical grounds may be a way of staying in your home but I have no idea of where to go. once again good luck to you.

Well, if there is always something - it must be well hidden - because I have been looking for a very long time!
Although my doctors etc do not believe that bankruptcy would lead to me losing my house the CAB and a number of the charitable debt solutions organisations disagreed. It is my only asset and they all feel therefore that losing the house would be inevitable.