Parents interest only mortgage ending

ent_moot

Hello,

My parents have an interest-only mortgage of ~350k , none of which is paid off and which will end in 2017.

My father (late 50s) lost his job about 6 years ago (going from a managing director role earning 100k to nothing overnight) and has since been unemployed and diagnosed with parkinsons disease and severe depression. He has no pension other than his state pension.

My mother works full time as a teacher, does all the housework and maintains the cottage (she is a hero).

They live in a beautiful thatch-roof listed cottage, which it currently looks like they will lose and probably be forced into council housing.

I am 30 years old, and have done reasonably well for myself: I'm on a salary of 75k, and I have a small mortgage (because I bought a very small house!) of ~220k.

I am very keen to pay off my mortgage as soon as possible. Is there anything I can do to rescue them without jeopardising my own future?

Although I have a very secure job, it is EXTREMELY stressful, and I would love to change careers in the near future when my mortgage is mostly paid off.

Any advice?

amnblog

Options for your parents depend on what the property is worth.

audigex

Firstly, how much equity do they have in their property? It sounds like you and they live in a fairly expensive area, if your mortgage on a very small house is £220k

With a small house being ~£250k (assuming 10% deposit/equity), I dread to think what a beautiful cottage costs. As such, they possibly don't need to go into a council house... although perhaps they'll have to move to a cheaper area, and it very much depends on their equity in the property. If they have 5% equity, you're probably right.

We need a little more detail before we can help you work out an actual plan, though

- Their monthly payments
- How much they can reasonably afford a month for their mortgage
- Your monthly payments
- How much you can reasonably afford a month after bills + mortgage
- How much equity they have in their home
- How much you have in yours
- The value of their home
- Are they willing to move to a cheaper area in order to continue to own their home, rather than move into social housing?

My instinct here is that if they've got a chunk of equity in their home and are willing to move, you can probably help them, but it will depend on specifics.

If they have £100k equity, there's probably something you can do here. If they don't, I doubt you have much scope other than moving to a cheaper area yourself (so you can buy a bigger house) and letting them live with you

If they don't have much equity (Potentially £17.5k if they had a 95% interest only mortgage), unfortunately there's probably not much you can do: they didn't take the opportunity in the good times to plan for the bad times

ent_moot

We live in totally different locations in the UK, and our jobs tie us to our locations, so moving would not be an option.

Their monthly payments

They barely manage to keep up with their monthly payments, despite their very small interest-only mortgage payment each month.

How much they can reasonably afford a month for their mortgage

See above. Maybe £500-600 tops.

Your monthly payments

I live an inexpensive lifestyle. On probably something below the national average.

How much you can reasonably afford a month after bills + mortgage

Nothing really. I've increased my mortgage overpayments so that I just barely come by each month. I'm overpaying by about 1k per month.

How much equity they have in their home

Not much. Maybe 40-60k tops I would imagine.

How much you have in yours

Maybe 50k.

The value of their home

Maybe 370-400, is my guess.

Are they willing to move to a cheaper area in order to continue to own their home, rather than move into social housing?

They are probably open to all options. Knowing the way they live, they would probably go with whatever is best for them in the short term. They have zero ability to think of the long term, which has actually resulted in a relationship breakdown between them and myself: me having to bail them out regularly whilst they ignore my pleas to cut costs (like cancelling Sky).

I suppose they would rather live in something very small in a nice area than something big in a not-so-nice area.

What I was hoping was that the bank might be willing to extend their interest only mortgage so that they don't have to go through the trauma of moving, and get to stay in their beloved home, under the assumption that I could help them out with their interest only payments if they struggle.

I suppose there's no real hope of it ever being paid back in its entirety.

Thoughts?

audigex

Based on a quick scan of the numbers, there's virtually no chance of them staying where they are now without you stopping overpaying your mortgage and propping them up.

So their choices sound like renting locally (If their income will sustain them on the local rental market, which I doubt with those prices), social housing or a significant move. My preference in your shoes would be the latter, as it should put them in a position to become sustainable in the next decade with minimal help from you, and to actually give them an asset at the end of it.

If they moved to my hometown, for example, £500/month and £40k equity would allow them to buy a £105k end of terrace (basically a mini semi-detatched) with small garden and drive, on a monthly payment of ~£500 over around 12 years, taking your father up to around 70 years old.

Or an £85k decent sized 2 bedroom terrace, nicely modernised, for a little under £500/month over 8 years, taking your father to around 65, or ~£350/month over 12 years

They need to stop thinking short term, though, and get a plan in place now for the rest of their lives, based on their assets and income. They also need to accept that they'll be moving, and re-adjust their idea of the house they'll be living in. Both to accept that £400k cottages aren't part of the plan anymore, and to realise that parts of the country exist where £80k gets you a perfectly serviceable little retirement house. Albeit without garden and views.

I highly doubt the bank will allow them to go into another interest only mortgage now, but it's worth asking and checking the figures. You're right, though, there's absolutely no chance of them paying off £350k on £500-600/month starting in their late 50s: they'll struggle to get a mortgage with a longer than 8-13 year term. Their limit will likely be around £100k.

Your challenge now is probably to convince them to move, and find an area they both like and can afford.

missbiggles1

ent_moot wrote: »

We live in totally different locations in the UK, and our jobs tie us to our locations, so moving would not be an option.


They barely manage to keep up with their monthly payments, despite their very small interest-only mortgage payment each month.


See above. Maybe £500-600 tops.



I live an inexpensive lifestyle. On probably something below the national average.


Nothing really. I've increased my mortgage overpayments so that I just barely come by each month. I'm overpaying by about 1k per month.


Not much. Maybe 40-60k tops I would imagine.


Maybe 50k.


Maybe 370-400, is my guess.


They are probably open to all options. Knowing the way they live, they would probably go with whatever is best for them in the short term. They have zero ability to think of the long term, which has actually resulted in a relationship breakdown between them and myself: me having to bail them out regularly whilst they ignore my pleas to cut costs (like cancelling Sky).

On a full time teacher's salary and one SRP, this is worrying - do they have lots of other debts?

sheramber

As father is in late 50's he won't be in receipt of state pension yet.

Can he claim any health benefits?

audigex

Yeah the father doesn't appear to have any income of note, so £500-600 seems about right for a teacher's salary, depending on circumstances and other costs: I can't imagine that property is cheap to run.

missbiggles1

sheramber wrote: »

As father is in late 50's he won't be in receipt of state pension yet.

Can he claim any health benefits?

Thanks, I misread the bit about him having only the state pension.:o

Mojisola

ent_moot wrote: »

My father (late 50s) lost his job about 6 years ago (going from a managing director role earning 100k to nothing overnight) and has since been unemployed and diagnosed with parkinsons disease and severe depression.

Is he claiming any health related benefits?

Thrugelmir

ent_moot wrote: »

They live in a beautiful thatch-roof listed cottage, which it currently looks like they will lose and probably be forced into council housing.

Everyone would like to own a chocolate box cottage to live in. Unfortunately for one reason or another they cannot. Rather than be melodramatic. What practical options do they have?

How much equity is in the property for example.

If your father was that well employed. What pension arrangements are in place.

Fair to say that it's only been low interest rates over the past 6 years that's enabled them to stay put for so long.