Support for Mortgage Interest Loan advice

InAPickle76

We had a message on our journal inviting us to apply for a SMI loan. Could anyone advise how this works? How do they calculate how much loan you are eligible for?

tacpot12

You will get help to pay the interest on any loan upto £200,000 although this might be lower in certain cases - see here for details Support for Mortgage Interest (SMI): What you'll get - GOV.UK (www.gov.uk)

They will only 'lend' you what you owe in interest. There is more information available at the link above. This says that they will ask you what capital is still owed on your mortgage, and how much interest you expect to pay on this, but as the amount of interest you pay changes each month, I'm not sure how they determine that they have paid the correct interest. The best option would be for the DWP to contact the lender either each month to check what interest is due, or for them to get enough details from the lender so that the DWP can calculate the interest accurately each month. Their culcuation might be out by a penny or so, but the lender won't worry about this, and you shouldn't either - over a long period you will end up paying interest on any shortfall in the DWP payments, but this will be tiny - certainly less than £1.

You will need to continue to make the capital repayments on your mortgage. The SMI Loans are really a last resort, if you can't pay the interest, but can make the capital repayments. I would think carefully about accepting the invitation. 

Yamor

As you are on UC the limit will be £200,000.

They will lend you based on their standard rate of interest, regardless of the rate of interest you pay. This is currently 2.65%, going up to 3.16% from 11th Dec. So you will get this rate even if your actual interest rate is lower.

Whether you should take it out or not depends on your other options. It is ultimately a loan at a decentish rate (currently 3.28%), with pretty good repayment terms.

ElwoodBlues

The monthly amount is calculated as your current mortgage balance (or 200k maximum) multiplied by their interest rate (3.16%) and divided by 12 (months). 

I would avoid it unless there's absolutely no other way you can meet your mortgage repayments. View it as a last resort. It's only a loan, it only goes towards the interest on your mortgage, and then they charge you interest on what they've loaned you anyway. So all you're doing is ending up incurring interest to the state rather than your mortgage lender. It's quite possible your mortgage interest rate is lower than the 3.16% that the gov will charge you (especially if you're on a current fixed rate that was set over 18 months ago).

If you're in a short term temporary position where you can't afford to meet your mortgage repayments (e.g. in between employment, while you sell your house, or possibly to ease your outgoings while you settle another debt more quickly, high interest, like a credit card) then those are about the only situations where it might make sense. It just might give you a bit of breathing space while you sort out a longer term solution.

You might want to discuss with your lender/broker about other possible options to reduce your monthly payment (extending the term, although this will likely require a credit/affordability check, which if you're genuinely that hard up that you can't meet the current mortgage repayments then quite possible you won't pass their criteria anyway).

While an SMI loan won't go on your credit file, a charge will be registered with the Land Registry. It may well make you a 'mortgage prisoner'. I can't imagine another lender being willing to take on a remortgage where there's an SMI loan outstanding? It must surely be a massive red flag to lenders about your finances.