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Urgent Advice Needed For A Close Friend

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Hi there,

A close friend of mine has taken out an Interest Only mortgage without thinking and has just been told by his collegue that the employer maybe laying quite a few people off. This of course has got him really worried and he's started to think about what is gonna happen to him if he lost his job in future. He broke down in tears as he couldn't cope with the thought if his home got repossessed.

For Your Information:

1. He's bought a house for £100k just a few days ago (crap area, so prices here are cheap).

2. He has an interest-only £80k mortgage, fixed @ 4.79% for 2yrs after which it variably jumps to 6.79% for a period of 20yrs.

3. He has a lump sum of £20k ready, so that after 2yrs he can pay this to clear some of his mortgage to 60k

4. His monthly payment is approx £320

My questions relate to what sort of mortgage he has and whether he might be able to get help:-

1. First of all he wants to know is that since this is an IO mortgage and he says that lets assume the interest rate is constantly 4.79% for the next 20yrs, when he pays his 20k lump sum after two years (so that'll be 60k mortgage left), will the £320 monthly also go down to approx £240 or will it stay the same?

2. Secondly if he lost his job, he will need help from the DSS. He won't get any help for 9 months, but he's okay with that. He wants to know that do people with INTEREST-ONLY MORTGAGE get help at all from the DSS or is it only those with a REPAYMENT MORTGAGE?

Many thanks for helping him!

RiPPeR

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The DSS only pay the interest not the capital anyway so he's no worse off if they do pay at all these days, I'd be surprised if they do tbh.

Has he not taken income protection insurance ? If not that might be worth organising ASAP, assuming he's not been told offically he will be going.

Edited by terrified

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Normally the best thing to do would be to put the 20k into the mortgage, switch to repayment and reduce the term.

However, if he's got emotional problems I would tell him to keep the 20k safe as an emergency fund which he could live off, unemployed, for maybe 3 years+

Enough time to find another job, and I'm not advocating spending 3 years out of work either. 2 months is long enough to travel around and see a bit of the world and 20k goes a long way if your sensible ;)

What's he worrying about?

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Thank You for your fast reply guys!!! Its really appreciated!!!

@ terrified - I'm sorry mate, but i think you misunderstood my question, which was that do DSS only help people struggling on REPAYMENT mortgages or do they help those who have taken out an INTEREST-ONLY mortgage too?

He will be taking out cover for income protection as its not official about job losses.

@ www - LOL! I'm sorry too mate, but i think you also misunderstood my question, which was that if he put in 20k after 2yrs into his IO mortgage, and lets say that the interest rate at that time is still 4.79%, would this actually bring his monthly's down to approx £240pm or would they still remain at £320 for the entire term of his IO mortgage?

THANKS AGAIN!

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Thank You for your fast reply guys!!! Its really appreciated!!!

@ terrified - I'm sorry mate, but i think you misunderstood my question, which was that do DSS only help people struggling on REPAYMENT mortgages or do they help those who have taken out an INTEREST-ONLY mortgage too?

He will be taking out cover for income protection as its not official about job losses.

@ www - LOL! I'm sorry too mate, but i think you also misunderstood my question, which was that if he put in 20k after 2yrs into his IO mortgage, and lets say that the interest rate at that time is still 4.79%, would this actually bring his monthly's down to approx £240pm or would they still remain at £320 for the entire term of his IO mortgage?

THANKS AGAIN!

I don't "think" they (Departmant of Work and Pensions) pay anybody's mortgage any more, I "think" they make you sell the house and move into rented. However in the olden days they would pay the interest part of the mortgage only, so weather you have a repayment or an IO mortgage they would only pay the interest part. Does that make sense ?

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I may be wrong but i was under the impression that the DSS will not pay any benefits at all if the claimant has more than 16K in savings. Anyone care to confirm this?

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I don't "think" they (Departmant of Work and Pensions) pay anybody's mortgage any more, I "think" they make you sell the house and move into rented. However in the olden days they would pay the interest part of the mortgage only, so weather you have a repayment or an IO mortgage they would only pay the interest part. Does that make sense ?

Thats not true mate..the DWP do pay the mortgage, but not for the first 10 months after you lose a job and here's a link from a law website:-

http://www.compactlaw.co.uk/free_legal_inf...g/privhf13.html

You may also be entitled to help from the DSS with payment of the mortgage interest if you are out of work or on a low income.

You should check with the DSS to find out if you are entitled to extra help in paying your mortgage. The benefits agency normally pay in the case of loans taken out before 2nd October 1995. They will normally pay the interest on loans for the purchase, repair or improvement of the home. They will not however pay the capital element of the monthly loan repayment or the premiums for any endowment or life policies.

However the benefits agency will pay nothing for the first 8 weeks and then 50% of the mortgage interest for the next 18 weeks, followed by the full housing costs after 26 weeks.

For loans taken out after the 1st October 1995 nothing is paid for the first 39 weeks, but then the full housing costs are paid after 39 weeks, or in the case of a single parent or carer the full housing costs are paid after 26 weeks.

Edited by Boom'n'Bust

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Thats not true mate..the DWP do pay the mortgage, but not for the first 10 months after you lose a job and here's a link from a law website:-

http://www.compactlaw.co.uk/free_legal_inf...g/privhf13.html

You may also be entitled to help from the DSS with payment of the mortgage interest if you are out of work or on a low income.

Well that's it I'm getting a divorce as soon as the ink is dry on my next house purchase, why would anyone go to work in this country !

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I may be wrong but i was under the impression that the DSS will not pay any benefits at all if the claimant has more than 16K in savings. Anyone care to confirm this?

You don't get Income Support if you have savings over £16,000

http://www.direct.gov.uk/Bfsl1/BenefitsAnd...8708&chk=CU5o6S

But you can get Jobseeker's Allowance, which is quite low.

http://www.direct.gov.uk/Bfsl1/BenefitsAnd...8757&chk=A1h/Ux

When I was made redundant a few years ago, they advised me not to bother with Income Support (even though I didn't have that level of savings) simply because the means testing was so intrusive. They didnt' mention I'd have to go through all of that anyway to claim housing benefit. Despite the benefits which I did get, I still used up 3/4 of all my savings before I found another job.

I absolutely *hate* means testing. I was careful with my money, so I get less than someone who blew it all on having a good time? WTF? Everyone should be entitled to basic income support, no matter whether they are rich, poor, or just struggling along like the rest of us. No means testing, no penalising those who don't save, or do save - just a basic safety net.

By the way, before I get the usual "Oh you were made redundant - how lucky!" comments from people who got 1.5 annual salary settlements and so on ad nauseum, I got statutory minimum redundancy, which worked out at about £500. Party!

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You don't get Income Support if you have savings over £16,000

http://www.direct.gov.uk/Bfsl1/BenefitsAnd...8708&chk=CU5o6S

But you can get Jobseeker's Allowance, which is quite low.

http://www.direct.gov.uk/Bfsl1/BenefitsAnd...8757&chk=A1h/Ux

It seems you don't get JSA either if you have more than £16k in savings

A quote from the Job Seeker's Allowance link above:

"You’ll get less if you have savings over £6,000. If you have savings over £16,000 you probably won’t qualify."

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Well that's it I'm getting a divorce as soon as the ink is dry on my next house purchase, why would anyone go to work in this country !

lol!!! Now I shouldn't be laughing..sorry..okay lets get serious mate...we are going off-topic here and i still need a few answers and would be grateful if anyone can help...here's the unanswered and a few more questions once again:-

1. If he put in 20k after 2yrs into his IO mortgage, and lets say that the interest rate at that time is still 4.79%, would this actually bring his mortgage payments down to approx £240pm or would they still remain at £320 for the entire term of his IO mortgage?

2. Once his 2yr fixed period expires, should he 1st pay of the 20k and then fix it again for a lengthier period (5yr or 10yr?) or do something different?

3. How does he bring his mortgage monthly's down quickly on an IO mortgage?

4. Will he be better off changing back to REPAYMENT after the 2yr IO fixed mortgage finishes?

Thanks

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It seems you don't get JSA either if you have more than £16k in savings

A quote from the Job Seeker's Allowance link above:

"You’ll get less if you have savings over £6,000. If you have savings over £16,000 you probably won’t qualify."

Honestly, I despair. I'm all for social justice, raising children out of poverty, a safety net for those who fall on hard times, etc. etc. This system just seems designed to perpetuate dependency.

It's not so much rob the rich to pay the poor, it's rob the careful to pay the feckless... grrr...

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Surprised he took out the mortgage with no income protection

some people don't bother as its the attitude "why waste money, when I know my job is safe"

Anyway isn't this going a bit off-topic...couldn't someone help me answer the questions i asked?

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Jesus,

1/ If its an IO morgage, hes always going to be paying the same amount for the term of the morgage.

There shouldnt be any repayment into an IO morgage unless special terms are included.

(HENCE THE WORDS INTEREST ONLY)

Example. i have a £100,000 morgage. I choose an Interest only morgage at 4.5% fixed for 2 years. i need to repay 4500 a year or £375 a month. NOTHING changes. on 1st month i pay £375 on 12 month i pay £375 and on 24th month, i pay £375. (but after 2 years - i still owe £100,000 as I have paid nothing off on my house (hence no repayment!!)

2/ So i then want to check my morgage.

I have £20k

So now i want to borrow £80,000 (£100,000-£20,000 savings)

£80000 * 4.5% = £3600 or £300 a month. (assuming interest rates stay at 4.5%)

now for next two years, every month i pay £300, but again after 2 years, i still owe £80,000

AS I HAVE NOT REPAYED ANY OF THE CAPITAL, ONLY PAID THE INTEREST ACCUMULATED ON THE LOAN

so after the 2 years, he needs to find the £80k from somewhere.

hope this helps.

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:( I might as well go to another forum, as no one seems to know the answers...bye

If the person has £20K in savings, what the hell is he/she worried about?

Honestly, some of you guys amaze me.

He/she has a lovely cushion while they find a new job. What's the problem? Are we supposed to feel sorry for them?

Monthly payments of £320 are hardly crippling. Mine are £1650 FFS.

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interesting and unjust that those whose mortgages were taken out before 1995 get preferential treatment

2) You may also be entitled to help from the DSS with payment of the mortgage interest if you are out of work or on a low income.

You should check with the DSS to find out if you are entitled to extra help in paying your mortgage. The benefits agency normally pay in the case of loans taken out before 2nd October 1995. They will normally pay the interest on loans for the purchase, repair or improvement of the home. They will not however pay the capital element of the monthly loan repayment or the premiums for any endowment or life policies.

However the benefits agency will pay nothing for the first 8 weeks and then 50% of the mortgage interest for the next 18 weeks, followed by the full housing costs after 26 weeks.

For loans taken out after the 1st October 1995 nothing is paid for the first 39 weeks, but then the full housing costs are paid after 39 weeks, or in the case of a single parent or carer the full housing costs are paid after 26 weeks.

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I would speak to the mortgage lender to see if I could pay £5k off (plus the redundancy if he gets any) of the existing £80k.

He will then have less than the £16k threshold which means the DSS will pay his mortgage for him after a period of time (9 months or so)

In don't see it being a problem. It's not as if he'd be asking them to pay for a £500k mortgage is it. There are other sites that will be dedicated to answering this sort of question so use a search engine using words such as "redundant mortgage repayment"

I was made redundant a few months back and was working within 5 days so maybe he is worrying needlessly.

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he should look to get 1 or two lodgers in as soon as possible, sign up with an agency

and get any job going until he finds a replacement permanant position. Its not hard (yet) to

get 'any' work.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • up 5%



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