Secured loans - are they tied to mortgages?

Will_d

Hi all,

I'm hoping a helpful forumite will be able to advise on this issue. It concerns a loan secured against a property, and I'm posting here because hanging on the phone to the loan provider takes too long.

Anyway, my parent have about eight years to run on their mortgage with the Halifax. As their fixed deal is about expire, they intend to remortgage at a lower rate, and possibly with another provider.

They also have a separate, smallish loan from the Halifax that's secured against the property.

In trying to figure out what they'll need to borrow, my father insists that the loan and the mortgage are linked. He says that if he remortgages with another provider, he'll need to borrow an additional sum to settle the secured loan as well.

However, even though I'm no expert, this doesn't sound right.

Surely the loan and mortgage, despite being taken out with the same building society, are independent of each other. Am I wrong? Does the settlement of one debt really require settlement of the other?

My parents are not moving property; they're simply looking to reduce their mortgage payments while interest rates are low.

Many thanks for your wisdoms.

stator

I don't know but wouldn't it be cheaper the repay the loan and add the balance to the new mortgage anyway?

Thrugelmir

The secured loan is most likely secured by the same charge as the "mortgage" loan. I doubt that the Halifax would agree to their charge becoming second behind that of a new lender.

Second charge secured lending is far more expensive than mortgage lending. Not normally the business that mainstream lenders are interested in.

The lender isn't going to talk to you on the telephone about your parents financial affairs either.

Will_d

stator wrote: »

I don't know but wouldn't it be cheaper the repay the loan and add the balance to the new mortgage anyway?

Perhaps, but to keep the loan-to-value ratio as low as possible, I suspect they're wary of borrowing more than is absolutely necessary. And if they ask for too much, the LTV ratio (even if just 3-4% higher) could scupper their chances of getting approved.

Will_d

Thrugelmir wrote: »

The secured loan is most likely secured by the same charge as the "mortgage" loan. I doubt that the Halifax would agree to their charge becoming second behind that of a new lender.

So I guess that means my father is right, no?

He will call the Halifax sometime next week to get a definitive answer, but I couldn't wait that long to find out who was right!

* Swallows pride, grudgingly *

PeacefulWaters

It's unlikely that Halifax would accept the secured loan ranked behind that of another lender.

It's unlikely another lender would advance funds on that basis these days.

Dad's right.

Will_d

PeacefulWaters wrote: »

It's unlikely that Halifax would accept the secured loan ranked behind that of another lender.

It's unlikely another lender would advance funds on that basis these days.

Dad's right.

I've checked out the additional cost of covering the loan, and potential remortgage payments would still be affordable for them.

But the LTV percentage concerns me. Would a typical building society entertain the idea of lending 66% of the house, but become reluctant if the application was for 70%? What is the threshold?

jonesMUFCforever

Will_d wrote: »

I've checked out the additional cost of covering the loan, and potential remortgage payments would still be affordable for them.

But the LTV percentage concerns me. Would a typical building society entertain the idea of lending 66% of the house, but become reluctant if the application was for 70%? What is the threshold?

Sorry but it is their calculation of affordability that counts - not yours.
How old are they? What do they earn? How much do they owe on the property by first mortgage and second? Any other debts?

Most mortgage lenders will now want the loan repaid by retirement age and will not lend willy nilly for things that would have been allowed 3 years ago.

Will_d

jonesMUFCforever wrote: »

Sorry but it is their calculation of affordability that counts - not yours.
How old are they? What do they earn? How much do they owe on the property by first mortgage and second? Any other debts?

Most mortgage lenders will now want the loan repaid by retirement age and will not lend willy nilly for things that would have been allowed 3 years ago.

I'm trying to help them find the best deal they can get (they haven't always done so), so although it's not up to me to decide what they can and can't afford, I'm sufficiently acquainted with their spending parameters to assess what's an unaffordable monthly repayment.

My father is due to retire in eight years, at the earliest, whilst my mother won't retire for at least ten.

If they didn't remortgage at all, they would still clear the mortgage and loan before retirement. Furthermore, they're not in danger of defaulting on anything else.

But, after reviewing their finances and doing a bit of online research, I know there are certainly deals available that could save them money.

And, of course, it all comes down to affordability. If they were to succeed in getting one of the remortgage deals I've identified, their monthly repayment would be lower than their current monthly payments. That includes clearing the secured loan through a remortgage.

I'm no expert, which is why I'm uncertain about the LTV tipping point. On paper, remortgaging would leave them better off. But are mortgage lenders willing to advance 70% to a couple with only a few years to go until retirement?

jonesMUFCforever

As long as the mortgage will be paid back within 8 years yes.