Transferring Mortgage Debt

Weakestlinks

Hi
I'm hoping for some advice\options on helping out with my elderly parents mortgage debt. The situation is that they have always had financial difficulties and have an interest only mortgage of about £90k costing them £350 a month, however, the savings plan they had to pay off the mortgage is massively under-performing and is essentially worth next to nothing - they have about 10 years to run on the mortgage and there will be a substantial shortfall. I'm concerned that the mortgage lender may want to review the performance of their savings plan and conclude that they need to transfer to a repayment mortgage which they simply can't afford. I help them out financially on a monthly basis which allows them to cover the mortgage payment and make over-payments to help reduce the debt, but I think the time has come to step in with a more official capacity that will satisfy the mortgage lender that the debt is suitably managed and their risk is at an acceptable level.

What would my options be here - is there a simple way to do this?

I can't afford the full monthly repayment figure (estimated to be able £820) without extending my own mortgage term by about 3 Years to reduce my mortgage payments. But I would then just be using this money to pay my parents more each month towards their increased monthly mortgage bill (assuming they transfer to a repayment model) but the debt will still be owned by them which the mortgage company may still consider a high risk.

If I release some equity and also extend my term I can get enough money to pay off their mortgage and effectively take on their debt myself. Is this a better option? Would I be allowed to take equity from my own house to pay off someone elses mortgage?
Do I perhaps need to buy their house for the amount of the outstanding debt - so I will own two houses.... but then I read about them having to either move out or pay me rent on which I will then get taxed...

So just thinking out loud really as I know very little about mortgages and the best ways to help clear family debt.
Essentially I just want to give the mortgage lender a way to reduce their risk whilst not having to over burden myself with complex legalities and red tape.

many thanks in advance for any input.

agarnett

One thing is clear - the mortgage lender has done no favours with a rate of around 4.7% if that £350 pm is only the interest. That would mean it would be three times the rate I've enjoyed for the last 5 years and nearly 5 times the rate someone else I know has enjoyed, and neither of us are god's gift to mortgage lenders!

And the crazy thing about this climate which lets traditional savers down so badly, is that I have been able to extend my borrowing at my low rate and "save" the borrowings at higher rates than it costs to borrow the money on my mortgage just by shopping around in ways that I am very aware aged parents usually cannot do.

Are your parents receiving all the benefits they possibly can get? Depending how elderly they are, and how fit they are, they may easily and quickly be assessed as eligible for non-means-tested help.

Mine for example have both stumbled into receiving attendance allowance after visits to hospital where loss of mobility was recognised before discharge, and those add up to more than £100 per week total for the pair.

If your parents do in fact still have their health and full mobility then I suppose that is one blessing at least even though it may mean no attendance allowance yet payable.

I say my parents "stumbled into" attendance allowance because like many of the generation, my parents were always "too proud" to apply for any benefits e.g. pension credits, and it was only when adult social care were consulted about return home from hospital that the attendance allowance thing was mentioned by them as a way to pay for a bit of home help.

It would be great if a lower rate mortgage could be obtained for your parents and if their income could be enhanced with extra state benefits.

Entwining your own finances with your parents sounds a bit complicated and if there is substantial equity in your parents' house, then like most of us, you might have to plan for chances of the local authority stepping in at some point to argue that was theirs to pay for care home costs.

Again you don't say what the equity might be in your parent's house, and it might not be great if you say they've always had financial difficulties?

Are you sure you've got the numbers right on their estimated re-mortgage costs? You indicated that switching to full repayment might increase payments to £820 pm, but of course repayment of £90,000 capital in equal monthly installments over 10 years (120 months) with 0% interest would alone cost (120 x) £750 pm. So it doesn't add up on the face of it.

To clear £90,000 at 4.7% (which £350pm interest only roughly translates to, as I mentioned earlier) would take around 12 years if paying £820pm, and that assumes the interest rate is fixed too.

Alternatively, to achieve full repayment at £820pm in exactly 10 years would I think require a fixed interest rate of just 1.8% if my spreadsheet calculations are correct.

Weakestlinks

Hi
Thanks for the reply - and you're right.... I did get the figures a little wrong. So the first figure (amount their mortgage costs) should have read £250 and not £350.... sorry a typo on my part.
Secondly, they have been making over-payments (with my help) so the current debt is now down to circa £75k and this is what I've calculated the payment to be about £820pm over the remaining 9 years - I'm not 100% sure but I believe the rate to be about 3.7% which is fixed and has another 3 years to run.


I would estimate their equity at being under £100k and their health is currently good - but thanks for the advice on the attendance allowance.


Thanks

Thrugelmir

What is the savings plan you mention? I'm sure it is worth more than nothing. Determining it's actual value would be a useful piece of information. Rather than contribute further to this plan. Would ceasing contributions and redirecting these at the mortgage not make a difference.

agarnett

Yes the savings plan might complete the picture, but it sounded like whatever it was had been seriously depleted and was of little consequence ? Obviously if they are still making payments into it like some topping up of a leaking bucket, then that money could be better used as Thrugelmir says.

The £75K outstanding, £820pm for 9 years at 3.7% fixed stacks up in the spreadsheet, although of course it depends what variable rate the current deal slips into in year 4 when the current period of fix ends.

I just took a look at the Aviva Equity Release calculator and that would imply that if the youngest of your parents is at least 77, then they could dump the whole thing in Aviva's lap and dispense with any further payments.

{Inputs being Joint, youngest 77, property value £175K, o/s mortgage £75K.}
There'd be no cash released as it would be maxed out using those numbers. If the youngest is older, then a little cash might usefully be released. I am not saying Aviva's is a good idea or even remotely close to a good deal, but it may assist your thinking rather than tangling yourself up with equity release on your own home.

By the way, you may or may not know that "Attendance Allowance" does not require any "attendance". Those assessed as qualified to receive it can spend it how they like. Something they might look forward to when they are not so sprightly, and if either needs a routine in-patient few days in hospital, then that's a good time to speak to your local authority adult social care team or equivalent, about getting assessed for it as there is may be a more obvious than normal need for a bit of support nursing on discharge - the hospital are usually quite helpful in joining the dots as part of their assessment of home-care needs prior to discharge. But meantime let's wish your parents as long as possible before they ever need any hospital stay! My father's first ever stay in hospital was at age 88, and I am not sure he had ever used hospital outpatient facilities up to that point for anything!

I think the actual Attendance Allowance application(s) (one for each potentially qualifying parent) can be started online by a relative if I recall correctly, and then your local authority pick it up from there. They usually come out and visit your parents for a sit down chat and a bit of form-filling - the assessor asks the questions and fills the forms. The (primarily physical) assessments are conducted on individual needs, and do not link your parents as a self-supporting couple.

Weakestlinks

Hi
I'd need to look into the savings plans to get an exact value but I would estimate no more than £15k and this is via various ISAs and savings accounts that had initial good returns but nothing now. I guess it all counts but contributions have already been diverted.


I appreciate the replies but sense that transferring a mortgage debt isn't possible (or easy to do) as focus tends to be on retaining the debt with my parents and looking for other ways to pay?
My simple maths (...and with the help of the mortgage calculator!) showed me that if I increased my mortgage by £75k (I've got about £500k equity on my own house) and extended my term by 3 years. The monthly amount would be pretty much the same as I pay for my own mortgage + what I contribute to my parents finances - Admittedly I'm extending my mortgage by a further 3 years which will equate to a lot of money but wouldn't the mortgage lender see that as a lower risk? Both my mortgage and my parents mortgage are with the same lender.

agarnett

Weakestlinks wrote: »

I appreciate the replies but sense that transferring a mortgage debt isn't possible (or easy to do) as focus tends to be on retaining the debt with my parents and looking for other ways to pay?

Don't take any of my posts as an indication of where the focus should be WL - I'm just a lay commentator with older parents of my own

I couldn't say whether transferring debt from your parents to you would be sensible or not, mostly because I don't know how such a thing would play retrospectively if your parents needed local authority care in the next few years and they started looking into the debt transfer. Depending how many years down the line that might be, if at that time the house was still in their name and with equity, then they'd have their eyes on it and might not recognise your prior charge on it unless it was tied up very well. There are other pitfalls to be avoided and you already mentioned the market rent one if you buy their house and let them continue living in it of course, and the question of just buying it at 75/175ths of value might incur even bigger questions in some scenarios.

There are a number of posters on these boards who seem very knowledgeable on what to do and what not to do as regards the documentation side of transactions like those you are considering, but as for how it all works - I sadly couldn't say just yet. I have a nasty feeling I should have found out more about it when my parents were 10 years younger, but luckily mine managed to pay off their little mortgage years ago, and they have always lived so frugally that money is barely incidental to their worries. Fascinating really how ordinary unambitious working class types could have reached the level of simple comfort they have in their own home - much owing to the old norm of good final salary pensions for even the shop floor workers with the bigger employers at one point in the UK.

Weakestlinks

Many thanks for the input - actually I have a quick follow up question perhaps you can clarify for me..... you seem good with figures )

I was just playing around with the MSE over-payment calculator for the figures my parents are currently paying. So I first put in a mortgage debt of £80k over 10 years (Interest only) with a monthly payment of £240 and £0 over-payment. The result was a calculated Interest payment of £28,800 + the £80,000 debt so a total of £108,800 over the 10 years.
I then added a monthly over payment of £160 for the same £80,000 over 10 years etc. and the result was a total figure of £104,861.

I don't understand how a monthly over-payment of £160pm for 10 years (which is a total of £19,200) will only save circa £4000 on the total?

Many thanks again

Imma_Number

Weakestlinks wrote: »

I was just playing around with the MSE over-payment calculator for the figures my parents are currently paying. So I first put in a mortgage debt of £80k over 10 years (Interest only) with a monthly payment of £240 and £0 over-payment. The result was a calculated Interest payment of £28,800 + the £80,000 debt so a total of £108,800 over the 10 years.
I then added a monthly over payment of £160 for the same £80,000 over 10 years etc. and the result was a total figure of £104,861.

I don't understand how a monthly over-payment of £160pm for 10 years (which is a total of £19,200) will only save circa £4000 on the total?

Many thanks again

That £4000 is a reflection of the interest saved.
The balance remaining after 10 years has dropped from £80,000 to £56,861. A difference of £23,139

ie you pay in £19,200 over 10 years and get £23,139 of benefit

Weakestlinks

Got it.... that makes total sense now - thanks

getmore4less

The MSE mortgage calculator is not a good tool for doing comparisons it gives very misleading results and for some it gets it wrong.

just use any regular calculator I use
http://www.whatsthecost.com/mortgage.aspx

and do your own numbers.

If there are some savings then find out those and then redo the numbers with any that are paying less than the mortgage rate getting cashed in an used to reduce the debt(avoid any ERCs).

Increasing your own debt is an option, make a loan to your parents to pay of their mortgage and they can pay you back at an affordable amount over any term you like.