Elderly mother's IO mortgage ending, can't pay!

bsmm228

Hi

My 84 yr old mum's mortgage ends in 6 months and she has no means to pay it. She owes £26k and the property is worth £280k. Moving her is not an option.


Lender has suggested either Equity Release or a Lifetime Mortgage, which we are nervous about. If we were able to raise the funds would my sister and I be able to clear it on her behalf?

I would really appreciate some advice on the best products to look at in relation to the Equity Release or Lifetime mortgage. If we were to make monthly payments to cover the interest does this mean that we would still only owe the original £26k borrowed on the event of her death. I have heard horror stories about the debt spiralling out of control.


Many thanks for any advice.

ACG

If you pay interest only you would still owe the debt at the end.

Have a chat with a Mortgage Broker who does equity release - not something I am qualified in. I know your concerns though, its one of those things I always thought was a bit dodgy which is why I have never passed the exam, but I was talking to somoene recently who said that part of the industry has cleaned up its act.

You could both look at doing a Regulated buy to let maybe? But you would need a broker for that as your options in terms of lenders are very limited.

pjread

No way you could rustle up 26k between the pair of you? It doesn't sound a ridiculously huge sum between two people. (I'm assuming you want t keep the property in the family...?)

Let_Us_See

Firstly, I will confirm I am a mortgage adviser and Lifetime Mortgage/Equity Release qualified - I just can't amend my MSE entry!

Currently regulated BTLs are a bit of a lottery and ultimately based on income and affordability rather than rental income. Therefore, if you and your sister are considering assisting your mother mortgage wise, a residential mortgage for a dependent relative would offer more options. However, even easier would be for both of you to re-mortgage/additional loan for £13,000 and clear mother's mortgage.

If this is not possible or you do not want to assume your mother's debt, a Lifetime Mortgage is probably the best two options. Option one, a lifetime interest only mortgage, where the interest is paid monthly and the outstanding debt will always be £26,000 and will be re-paid from your mother's estate. Option 2, a standard Lifetime Mortgage with no monthly payment with the original loan and compounded interest again re-paid from your mother's estate. A lifetime mortgage is now a very highly regulated product and "horror stories about debt spiraling out of control" simply can't happen as a fixed rate scheme provides a projection for 15 years, so you know before you apply what the overall debt will be at the end of every year - there are NO surprises.

Interest only schemes are approx 4.75%, but your mother will need some form of income as they are "affordability based." Lifetime mortgages, with no monthly payment, start at just over 5% and as an exercise, and to combat horror stories, I have quickly calculated the following.

Based on a £280,000 valuation, aged 84, and borrowing £26,000 on a compounded interest (no mortgage payment required as interest is rolled-up) basis the total outstanding (original loan and interest) balance at the end of 5 years would be £34,034, and £43,548 if your mother lived for 10 years. Therefore, there are no hidden surprises? If we assume a 1% property price increase during these periods, then the residual property value would be £261,471 after 5 years, and £265,746 after 10 years.

I hope this post has helped you understand the available options, and allay some of your fears and doubts associated with lifetime mortgages.

amnblog

Interesting dynamic.


Mum keeping her home V cost to Estate proceeds.

densol_2

Could you and your sister not raise £13k each perhaps on a personal loan and pay the mortgage off? Then perhaps each have a charge against the property for your £13k to make sure in the event of your mothers death you both get back your original amount back from the estate before its shared between any beneficiaries ?

bsmm228

Let Us See - thank you so much for the advice does make things clearer.

I think we are now deciding that we will both raise the funds to pay it off, I just wasn't sure if we would be allowed to.

silvercar

bsmm228 wrote: »

Let Us See - thank you so much for the advice does make things clearer.

I think we are now deciding that we will both raise the funds to pay it off, I just wasn't sure if we would be allowed to.

You are allowed to spend your money on anything legal in this country.

You should however protect yourselves for the future by documenting the payment. Things to consider (of course not all will apply)

1. Future inheritance tax - suggest registering the loan on the property deeds
2. Mother's potential future care needs and costs - again register the loan
3. If you or your sister were involved in any insolvency case there could be an attempt to say the payment should not have been made. In the case of bankruptcy the Official receiver may attempt a claim on it.
4. Deprivation of assets by you or your sister if either are involved in claiming help with care for yourselves or means tested benefits.
5. Future claim on the stake and/or the property by you/ your sister/ any current spouse/ any divorce settlement/ any future partner of your mother.

silvercar

Let_Us_see wrote:

If this is not possible or you do not want to assume your mother's debt, a Lifetime Mortgage is probably the best two options. Option one, a lifetime interest only mortgage, where the interest is paid monthly and the outstanding debt will always be £26,000 and will be re-paid from your mother's estate. Option 2, a standard Lifetime Mortgage with no monthly payment with the original loan and compounded interest again re-paid from your mother's estate. A lifetime mortgage is now a very highly regulated product and "horror stories about debt spiraling out of control" simply can't happen as a fixed rate scheme provides a projection for 15 years, so you know before you apply what the overall debt will be at the end of every year - there are NO surprises.

Very interesting and helpful.

What would happen if option [1] was taken and the interest only payments proved unaffordable at some point in the future?

With option [2] what happens if a new partner moves in who outlives the mother. After 15 years is the whole thing re-evaluated? Are there any property valuations along the way and if so, what effect would a drop in value have?

WillyWonga

I am in a similar position - my dad owes £25K on a £250K property - interest only and comes to an end in 3 years. He is 72 - The plan was to clear it before the end but the death of my mum ended that plan. He pays £56 month interest only. The main mortgage has been paid off - whats left are secured borrowings they had over the years to fund house renovations etc with the same lender. When I went in to the branch to take my mums name off the account the staff member said that as its such a small account they doubt that they would force a sale if the amount was still o/standing after the 3 years - that I dont want to risk running round at the last minute.

I heard Santander were looking to enter the lifetime mortgage a year afo, unsure if they did. I've been a bit dubious about lifetime mortgages and will see over the next year if any of the "big boys" come along.

Let_Us_See

WillyWonga wrote: »

. I've been a bit dubious about lifetime mortgages and will see over the next year if any of the "big boys" come along.

There are already "big boys" in the market.