Early repayment of loan due to death

jwright

My mother in law has recently passed away.  I'm currently organising probate and calculating assets and debts.  My mother in law had a loan which she was about 3 years through a 5 year repayment period. 

The value of the loan is £6,600 now, will that be the settlement figure or will the bank add on the interest that would have been paid over the next two years had she lived to repay it through monthly payments?

DE_612183

Normally a settlement figure is less than the balance outstanding...

But you need to get a settlement figure as that's what you will pay.

CliveOfIndia

Interest is not "front-loaded" (that practice was made illegal some time ago).  So it's essentially just the remaining capital that must be repaid.

A lender is allowed to charge an early settlement penalty of up to two month's worth of interest (1 month if there's less than a year left to run on the loan).  So when you ask for a settlement figure it will comprise the remaining capital plus 2 months of interest (you may be very lucky and find they charge less than 2 months of interest, but don't hold your breath!  But they can't charge more than that).

jwright

DE_612183 said:

Normally a settlement figure is less than the balance outstanding...

But you need to get a settlement figure as that's what you will pay.

Thank you, we have requested it. 

I'm just forward planning / thinking, as while there are enough assets in the estate to clear debts, there isn't enough in terms of 'cash' so something will need to be sold.  I am just trying to understand what's what so we can start to think about what we will do.

jwright

CliveOfIndia said:

Interest is not "front-loaded" (that practice was made illegal some time ago).  So it's essentially just the remaining capital that must be repaid.

A lender is allowed to charge an early settlement penalty of up to two month's worth of interest (1 month if there's less than a year left to run on the loan).  So when you ask for a settlement figure it will comprise the remaining capital plus 2 months of interest (you may be very lucky and find they charge less than 2 months of interest, but don't hold your breath!  But they can't charge more than that).

Thank you, that sounds good if that is all that gets added!  I was imagining the whole of the future interest getting added on!

Brie

jwright said:

DE_612183 said:

Normally a settlement figure is less than the balance outstanding...

But you need to get a settlement figure as that's what you will pay.

Thank you, we have requested it. 

I'm just forward planning / thinking, as while there are enough assets in the estate to clear debts, there isn't enough in terms of 'cash' so something will need to be sold.  I am just trying to understand what's what so we can start to think about what we will do.

Have you made the request through their bereavements team?  It may be that they are more generous when the circumstances are completely out of the individual's hands.  I did hear of one bank that wrote off similar debts on the individual's death rather than bother the estate to get the money owed.