Advice on mortgage support loan

jobe1972

Hi I have just bought my home as of yesterday its a ex social housing home the only way I could ever afford to buy with the substantial discount as I got in just before labour destroyed it..
So my mortgage is £130k over a 25 year term I wont be having it that long 
I intend to have it gone within 10 years if all goes well.. but I need some advice on a MSL as I currently get UC and now will no longer get housing ..
I dont need the payment but my thinking is if I applied and they cover some of the interest that allows me to use what I would pay as a extra overpayment and in doing so will in the long term reduce the balance faster.
I know its a loan but the interest on the SML is lower then my mortgage rate and the faster I can clear or chip away at that 130k the less interest I will have to pay

I am debt free I owe nothing and that was thanxs to martin lewis program so here I am back again

Thankyou for reading 

teaselMay

Do you mean the UC support for mortgage interest (SMI) loan? https://www.gov.uk/support-for-mortgage-interest

It may be worth doing but I'd read a lot about it first, the way capital in the house is treated may make it ok but it does add a second charge on the house which may have implications if you need to remortgage in the future

I bought a shared ownership house a couple of months ago and was contacted by UC telling me I'd be eligible for SMI a few weeks ago. I've only briefly read their information because it doesn't feel right and I don't want to complicate things - it was a very long hard slog to buy as I suspect it was for you. I'm planning to over pay when I can and only claim the SMI loan if mortgage rates get very silly.

jobe1972

Hi. yes thats what I am on about in theory seems like it would help because the more I can over pay at the start the less interest I will pay the first 5 years or so of the mortgage seems to be 80% interest 20% off the capital so reducing the actual mortgage will save me .. and yes I been waiting for years to buy here its the only way I could ever do it and I am not young now and was hoping to wait till dec so I would get my full discount as cost floor was active until then but the recent change to the discount you get made me have to apply earlier to get my full discount minus the cost floor

but its done now and as of the 18th I now own a house well bank does .. I otherwise debt free so I can overpay at least for now by a fair bit even more if UC was covering a chunk of the interest but wouldnt i be then paying interest on the interest lol via the SMI

housebuyer143

jobe1972 said:

Hi. yes thats what I am on about in theory seems like it would help because the more I can over pay at the start the less interest I will pay the first 5 years or so of the mortgage seems to be 80% interest 20% off the capital so reducing the actual mortgage will save me .. and yes I been waiting for years to buy here its the only way I could ever do it and I am not young now and was hoping to wait till dec so I would get my full discount as cost floor was active until then but the recent change to the discount you get made me have to apply earlier to get my full discount minus the cost floor

but its done now and as of the 18th I now own a house well bank does .. I otherwise debt free so I can overpay at least for now by a fair bit even more if UC was covering a chunk of the interest but wouldnt i be then paying interest on the interest lol via the SMI

You may not be able to remortgage in future which you will find to be a huge headache unless you plan to stay with the same lender forever - so it might end up costing you as you can't get a better rate while that loan is outstanding. 

silvercar

Would your lender have a view on you needing a mortgage support loan from the start, being on your very recent mortgage application you could afford the mortgage?

teaselMay

You would basically be paying off the mortgage whilst simultaneously accumulating an interest charging debt to DWP. The way that the SMI debt is managed does mean that it can't in itself put you into negative equity, because if there's no equity the debt is written off, but it may well complicate your mortgage and restrict options for any future mortgage

saajan_12

How much is the difference in interest rates? You're not really paying down the mortgage faster as any overpayment is essentially increasing the debt on the MSL. So the only benefit is the difference in rates. 

Eg say your main mortgage interest rate is 5%, and MSL is 4%. 
In the first year, you pay ~£6350 in interest or ~£530 a month, so that's the max loan. If you overpay that much  each month and simultaneously start paying interest on the MSL loan each month, you save ~6350 x 1% / 2 = £32.75 in the first year. 

In year 2, you start with a smaller balance so the loan size each month is smaller, but the difference in interest applies to a larger amount..

Is it worth it for £32.75? Personally the paperwork would take longer, I'd rather just use that time to hammer away at the main mortgage with overpayments.