Interest only mortgage for widowed mother

pauper79

I would appreciate advice from anyone who can help me to solve this complicated issue. My father died recently and my mother inherited the house. There is an outstanding mortgage of about £65k on a tracker at 1.5% above base rate, so the current rate is 2.0%. It is a repayment mortgage and will be paid up in about 10 years’ time. Sadly there was no payment protection in place.

The difficulty is that my mum can’t afford the repayments onher own. She is in her early 60s and gets a state pension plus a small income. About £13k p/a in total. I am happy to make the payments on her behalf but would prefer to do it on an interest only basis, so the monthly cost is lower. I would either keep it that way indefinitely, or pay off the mortgage for my mum at a time when I can afford it.

I assumed it would be simple to swap to an interest only mortgage but apparently not.

1. My mum’s existing mortgage provider does not offer interest only mortgages so we cannot change it to interest only.

2. I assume my mum does not have a sufficiently high income to re-mortgage for the full amount outstanding. Even if her income were higher, from initial research it appears that she would be over the age limits for some lenders.

3. I could make a joint application with my mum to re-mortgage which would solve the affordability issue, but all of the mortgage companies I have spoken to say that I would then need to go on the deeds as joint owner of the house. I want to avoid that as it seems to involve all kinds of horrible side issues such as my CGT liability, complications when re-mortgaging my own house, etc.

4. My mum could apply for a mortgage with me as guarantor, but not all lenders offer guarantor mortgages, and those that do seem to have really uncompetitive rates.

5. I considered applying for a 0% credit card and just sticking all the repayments on that, and then shuffling it around for awhile with 0% transfers, but current lender will not accept credit card payments.

Any other bright ideas gratefully received!

amnblog

Point 3 (above) is not always true.

Ask barclays Woolwich

beckysbobbles1

I'm sorry your in such a difficult situation.

I was in a similar position to your Mother when my husband died but thankfully I was able to switch my mortgage to interest only as I had a life insurance pay out.

It maybe very difficult to remortgage at your mothers age and with low incomes. A lot of companies will not allow an interest only mortgage without there being a repayment vehicle in place.

Could you not explore the option of transferring the property into your name as well? I'm not sure on the tax but one thing would be IHT could be saved if it goes directly to you.

I really don't recommend putting the payments on a credit card, this could cause no end of issues in the long run.

Could another option be with down size properties and then the mortgage could be repaid?

holly_hobby

There are only 2 lenders I'm aware of that consider a mortgagor whom is not on the deeds, Barclays/Woolwich being one of them as noted above, the other being HSBC (but HSBC have a max age of 75 yrs, and 65 yrs on IO).

If you remaining off the deeds is not possible, the issue raised re CGT is a relevant one, as this will not be your primary residence from any transfer of equity effected, you will be exposed to CGT to some degree upon your share of any gain on disposal (dependant upon exemptions that will apply at that time).

To avoid your inclusion on the mge/deeds, there are still a couple of lenders whom don't have the upper redemption ceiling of 75 yrs (of which your mge adviser will be aware), but unless there is a repayment vehicle in the background, or a super low LTV, this will be on a capital and interest basis (assuming mums income is sufficient under the lenders affordability matrix).

If she doesn't want to downscale, and dependant upon the value of the property, she could consider a lifetime mortgage arrangement, where the max mge is based on the applicants age and property value as opposed to her income. (nb - at early 60s she is still too young for a home reversion scheme, where the loan represents and is secured as a % of the property valuation).

Typically there is also no requirement for any monthly repayments on a lifetime mge, BUT, with the accrued interest rolled up on the debt, but obviousy this will over time erode the free equity available, which will obviously effect your inheritance (if thats a consideration for you). There are however a couple of providers whom permit the payment of interest on a monthly basis, to effectively ringfence the debt - which may be attractive.

Repayment is designed to be upon the mortgagors entry into longterm care or death, ensure you seek a scheme with a no negative equity gte, and take note that the payrate and associated fees are higher than that of traditional residential mortgages - but for some peeps its a solution to a tough situation.

Given that there are beneficiaries in the background (and subject to meeting criteria), I would consider a LT mge as a last possible solution, to which advice should be sought from a qualified and authorised lifetime mge adviser.

You may want to try SOLLA for local advisers whom have been independently assessed in this area - http://societyoflaterlifeadvisers.co.uk/ and the Equity Release Council (previously SHIP) - http://www.equityreleasecouncil.com/home/, for further info and guidance, your local yellow pages and google will also assist in locating suitable advisers.

Hope this helps

Holly

pauper79

Thank you very much for these helpful replies. I appreciate people taking the time to explain things. I will certainly check out Barclays / Woolwich. I was not aware of the concept of a lifetime mortgage - very interesting - and I will definitely explore this if there are no other options available.

Let_Us_See

We can provide more accurate information if you can confirm your mother's date of birth and the approx property value.