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Another question if I may please.

I am currently half way through my 6 year IVA. I have a repayment mortgage, which I am paying £750 a month for. Each month, the capital amount reduces. In effect, what this is doing, of course is growing the equity in my Property.

I have the opportunity of changing this to an interest only mortgage. This will obviously have an effect on the monthly payment (£550) which I will need to tell my IP about. I assume my payment under the IVA will increase by £200....fair enough!!!

In changing to an interest only mortgage, in effect I am keeping the equity in my house at a low level.

When my IVA was set up I was deep in the doody!!! Not only did I have loads of unsecured debtors, but I was up to 95% on my mortgage and Carol Vorderman had talked me into taking out a further loan secured on my Property over and above the equity threshold.

This means that my IP estimated that even at the end of my IVA, the equity in my Property would be nil. This is indeed stated in the IVA document. In a strange way, I see this as an advantage for me. As a sub prime customer I would of course be charged inflated credit charges if forced into re mortgaging by the arrangement. I assume however that I would only be forced into re mortgaging , if there was equity available.

You can see my arguement therefore in my attempts to keep my equity down at this stage.

The question therefore is quite simple.

Is there anything stopping me changing my Mortgage to an interest only one?

I have checked the IVA agreement and it appears that the only requirement is to keep up repayments.

Thanks in advance.

Hi Roytoner,

I think you should check whether there's an equity release clause in your IVA. The answer is vital to deciding on your options.

Andrew Graveson
Mortgage Broker & Bright Oak Debt Management
andrew@brightoak.co.uk
www.brightoak.co.uk

Hi Roytoner

Unless your proposal actually states that you can't change the basis of your mortgage (unlikely) there should be nothing to stop you changing to interest only.

I would do it in consultation with your supervisor, however, just to keep them in the loop and because there may be arrangement fees and other costs that temporarily might affect your disposable income.

The decision will be influenced to some degree by your view on how property values will move in the next few years but, on balance, for the reason that you have identified it probably would be a good move.

If your IVA stipulates a minimum dividend,this would also be a good choice because it will allow you to make higher contributions in to the IVA, and give you a degree of certainty, as opposed to hoping that the remortgageable amount of equity towards the end of the term will be enough to acheive the minimum.

There is a requirement for me to get a valuation on the Property at the start of the last year of my IVA. I assume this is the equity release clause.

Even so, I can't see anywhere in the agreement where it tells me I cant change the basis of my secured lending.

Remember, they have anticipated at the start of the agreement, that due to the high level (approx 125% of property value) of secured lending, there will be NO equity at the end.

Hi
Is your IVA six years because you are expected to NOT release equity[quite normal] or six years plus an equity release ?
Regards

Andy Davie
IVA.co.uk Spokesperson

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Although we would rarely recommend interest only mortgages as a good thing, they do serve to keep the equity needed to be raised at the end of the arrangement to a more affordable level and allow higher contributions to be made during the IVA.

I often have these sort of discussions with my clients, and don't forget that you carry on making higher mortgage payments for long after the IVA has concluded, so minimising the equity release could be advantageous.

Do not take any steps to do anything with regard to your mortgage, without taking advice from a properly qualified mortgage broker, though.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

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Picking up on a point raised by roytoner, please be careful with these negative equity loans, I know I have posted on them before but having seen another case this week which also had a negative equity secured loan I can`t stress enough the perilous position you maybe putting yourself in. I honestly can`t see how they are justified as being acceptable to anyone. Tony

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I completely agree with Tony on this and have also raised the same point on a number of occasions.

Raytoner there is an awful lot to consider before switching to interest only;

E.g.
- how likely are you to be in positive equity in the beginning of your sixth year.

- if you are in positive equity in the sixth year, will the costs associated with remortgaging outweigh the benefits.

- the best you could achieve with a remortgage whilst in an IVA (based on what is available today) is 90%, would this be sufficient to release any equity in the beginning of your sixth year? Considering you are currently in negative equity.

- bearing amortisation tables in mind, how many years do you have left on your existing mortgage? You may well be paying mainly interest for the next three years on your first charge mortgage anyway.

Just because you will have to get the property valued in the sixth year does not mean you will be in a position to remortgage.

I would imagine you are talking to your current lender, which is good and should be encouraged, but maybe you need to talk to a mortgage broker to discuss your personal circumstances in more detail to allow best advice.


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