Starting an IVA what to expect?

SIRENS

Sorry can I ask 1 more question, my debt is just under £21k and pay plan worked my payments at £83 pm, after 5 years I would have only payed a quarter of my debt, I realise that they can ask me to borrow on my property but I'm fairly certain the bank would not agree as the income multiples would not allow this as the income stretch would be too much. Am I right in thinking they could extend the iva for another year then wipe the rest of the debt, just seems my creditors would be loosing a lot?

Foxy-Stoat_3

They will probably extended by another 12 months.

25% + is the normal minimum you pay into an IVA.

SIRENS

Thanks Foxy-Stoat
Just seems they have nothing to gain from agreeing but I guess some money back is better than none?

Foxy-Stoat_3

If your talking about IVA's then your not far off Bankruptcy, the creditors get far less if you go BR so IVA is better for them.

longtermplanner

There are some things I think you need to think about that worry me about an IVA proposal for a house owner only paying £83 a month:

1) how will you manage when mortgage rates rise? Many people think they will go up next year or the year after, will you still be able to afford the IVA after this?

2) the kids are going to get older. Cheap primary school kids who like picnics and playing in the park tunr into moody teens who need mobiles and trainers and school trips. teens go to uni and the child benefit and child tax credit stop but your expenses don't seem to drop that much

3) you feel sure no-one would ever offer you a remortgage, but if there is equity a sub prime lender may offer a secured loan at a dreadful interest rate.. See the comments at the bottom of this article where people in IVAs are being pushed to take loans at 16 and 22% http://debtcamel.co.uk/iva-agree-to-small-change/

4) the house needs a lot of work you say, is the boiler / fencing / guttering going to last 5 or 6 years with nothing spent on it? How are you going to manage if the washing machine breaks down?

UpToMyNeckInIt

Some fair points raised by LTP.

I think you will find though that the only people being clobbered by the high interest loans have large amounts of equity, and a high iva repayment.

Remember that eligibility for a loan is dependant upon the limitations of the iva terms, namely: monthl y cost limited to 50%of current iva repayment, with the equity released having to exceed the £5,000 deminimis.

So taking the OP's figures, you have to consider how much can be raised through repaying half of £83 pcm with an Apr of 20%? The answer is 'nothing'.

Other relevant limitations have to be considered like the loan not being allowed to extend into state retirement and multiples of income.

Based on the OP's information, I would say they are pretty safe.

Come equity release time, IF the OP has more than 15%equity, chances are that a12 month extension is likely.

SIRENS

Thanks for both your comments
My mortgage is partly on a staff rate (I work for my bank) so I am partly protected by interest rate rises, because I work part time now and dh earns less now then when we took the mortgage are affordability will not stretch to further lending as I did look into borrowing more to consolidate our debts awhile ago.
My children are 10 and 6 so my child benefit would drop but only during the last year (assuming a 1 year extension) but I hope to be able to increase my hours once my youngest is older.
I am lucky that we lead a very spartan life style and my Mum buys lots of clothes and bits for the kids so hopefully that should be okay.
As to the house it is true that we are struggling, the hot water tank is currently on the blink at the moment and although it is a pain we will manage, I have made sure that I have always paid all my bills so will always find a way yo pay the mortgage and iva.
1 more question, I owe my Mum some money and pay plan have asked that she stand aside for all payments until the iva is paid, they want a letter fom her. I have not told her about the iva but she is happy to wait for me to pay her back whenever, will they contact her regarding this, I do not want her worrying so would rather keep the iva to myself?

Thank-you for your help and advice, it has eased my mind no end posting and reading this board, I feel like I am not alone x

debtfree2016

Hi SIRENS, just quick one, do you know if your INT prt of the mortgage is for a set period. Mine was changed from INT to Repayment after 8 months into the IVA. The bank said I could only stay on it for a period of 24 months. This has a massive impact on my outgoings. Payplan were able to reduce my payment at their cost, but I still had to find another £300+ to cover it. Best of luck.

SIRENS

Thanks debtfree2016
My mortgage was originally taken out as full interest only as I have an endowment policy in place to (supposedly) repay it. After about 5 years I realised this wasn't going to happen as the shortfall was fairly large so changed it myself to 50/50.
So I don't think the bank can change it as the original repayment vehicle was interest only. Also hopefully the endowment will mature above what I need to knock further debt of the mortgage.

UpToMyNeckInIt

Could you not cash in your endowment to reduce your debt, and avoid entering the iva?

I am surprised that your creditors have not at least demands that you surrender it to increase their dividend. Best check the risk of this happening with Payplan.