Why am I having to pay an equity release loan before remortgage?

[MelanieGiles]

You can only earn fees for doing work. There is no work done in referring a client to a mortgage broker or loan provider.

The first chargeholder does have to agree to the granting of a second charge. If you defaulted on a secured loan, the lender has the right to take possession proceedings, which ultimately could result in the loss of your home.

[Michael Peoples]

There is a remortgage product available at 7.55% for those in an IVA. It would clearly be better to get a small secured loan rather than switch your whole mortgage to that rate. The loan repayment can only be at 50% of the IVA payment so the higher the APR the lower the amount that can be borrowed. DFD are stating that a remortgage ould take place after a year or so which may well be the case as your credit file has cleared up.

[Goosed]

That is a much more feasible interest rate than 18% APR Michael, if it is available to people in IVA`s.

And in the event that a debtor at the equity release stage, with a lot of equity available having actually been offered a remortgage on their whole outstanding mortgage balance and equity by their bank at a higher rate, then that is the rare instance whereby the debtor could benefit from CHOOSING to opt for the secured loan for the equity amount only.

But that isn`t the case with Rose68`s situation and what DFD are trying to force her into,

Just as it hasn`t been the case with the other such like instances that have appeared on the forum over the last eighteen months or so.

[Michael Peoples]

Try Magellan for the mortgage product. You will get one one if you have the equity. A secured loan would be cheaper.

[nickjohn]

If you are faced with going down the route of taking out a secured loan for say a 10 year term and incur the interest charge what would the chances be of negotiating an extension to your IVA term and make reduced payments that total up to loan amount.

8% interest on a £10k loan over 10 years adds up to nearly £5k, at least having an extension saves you the cost of all the interest charged.

[MelanieGiles]

What is the LTV for that product, Michael?

[Michael Peoples]

http://www.magellanhomeloans.co.uk/medi ... 202013.pdf

I am not a financial advisor but this seems to say at least 65% LTV and it is a remortgage product available to those in IVAs. There will of course be more products available once the market frees up.

[UpToMyNeckInIt]

So using some of the figures banded around on this forum, fact it (as much as I detest the interest rates and extortionate fees) IT IS cheaper to take out a high APR secured loan over a remortgage in some cases.

Example: Assume an IVA customer and homeowner currently repaying £500pcm into their IVA. Their house is worth £242,400 (about the UK average), but mortgaged at £145,000 at 4.5% apr over 20 Years. Monthly mortgage repayment around £900-£930pcm.

At equity release time, they have to attempt to raise £10K through equity release. (Assuming they meet all affordability criteria).

Choices:

1). Remortgage offered for £155K at 7.55%apr for 25 Years = £1126pcm.

Total repayable: £337,600. Total interest paid £182,600 (as opposed to the £78,000 to £95,000 interest on the 'normal' mortgage). So the remortgage leaves the customer £87,500 worse off at best assuming it goes to term.

2). Secured loan for £10K at 18%apr for 10 Years = £172pcm.

Total repayable: £20,600. Total interest paid £10,600.

Option 2 leaves the customer nearly £77k better off.

...OK, my maths may not be dead-on, but you get the idea.

In the face of a sub-prime mortgage offer, I know what I'd go for: Give me the loan any day.

Fact is, with the housing market apparently picking up. Mortgage criteria WILL relax as we come out of recession. It follow that more and more IVA customers will have to consider all options in a few years time.

[nickjohn]

With a re mortgage you must satisfy the requirements for income multiplier to make sure you can afford it, my own mortgage was taken out when I was on a far higher income and would never be offered to me again nor would I be eligible for any remortgage of any kind. yet the secured loans seem to be offered on the basis that you have been making IVA payments regularly for 5 years and as long as the loan re payments are less than yourIVA payments then you qualify, isn't this a recipe for disaster further down the line..

[nickjohn]

font size="1" face="Verdana, Arial, Helvetica">quote:<hr height="1" noshade>Originally posted by UpToMyNeckInIt

So using some of the figures banded around on this forum, fact it (as much as I detest the interest rates and extortionate fees) IT IS cheaper to take out a high APR secured loan over a remortgage in some cases.

Example: Assume an IVA customer and homeowner currently repaying £500pcm into their IVA. Their house is worth £242,400 (about the UK average), but mortgaged at £145,000 at 4.5% apr over 20 Years. Monthly mortgage repayment around £900-£930pcm.

At equity release time, they have to attempt to raise £10K through equity release. (Assuming they meet all affordability criteria).

Choices:

1). Remortgage offered for £155K at 7.55%apr for 25 Years = £1126pcm.

Total repayable: £337,600. Total interest paid £182,600 (as opposed to the £78,000 to £95,000 interest on the 'normal' mortgage). So the remortgage leaves the customer £87,500 worse off at best assuming it goes to term.

2). Secured loan for £10K at 18%apr for 10 Years = £172pcm.

Total repayable: £20,600. Total interest paid £10,600.

Option 2 leaves the customer nearly £77k better off.

...OK, my maths may not be dead-on, but you get the idea.

In the face of a sub-prime mortgage offer, I know what I'd go for: Give me the loan any day.

Fact is, with the housing market apparently picking up. Mortgage criteria WILL relax as we come out of recession. It follow that more and more IVA customers will have to consider all options in a few years time.

Whilst I understand where you are coming from with your basic calcsi would say that most people going down the re mortgage route would just take out a second mortgage against there property for the required amount as opposed to starting a whole new 25 year mortgage at a higher rate.

You could also take out the second mortgage for a shorter term not the full 25 years.

If you factor these into your calcs the secure loan is not always the best option.

The only difference I can see between a mortgage and secured loan is the mortgage is restricted to a % of the value of your propertyand the secured loan is not and the secured loan is twice the interest rate..

[nickjohn]

To expand further on your scenario.

Current mortgage 145,000 at 4.55% interest over 20 years
Repayments, say, £ 915, total repayable £ 219,370, interest paid £ 74,370.

If the whole amount was re mortgaged then you must allow for the interest on the original amount and loan amount separately not all together.

Option A.

Re mortgage £155,000.

£145,000 allocated to original loan, £10,000 new loan.

145,000 @ 7.55% interest over 25 years = repayments £1,053.00, total £315,843 interest paid £ 170.843.

10,000 @ 7.55% interest over 25 years = repayments £73, total £21.783 interest paid £11,783.

Option B.

Secured loan.

£10,000 at 18% interest over 10 years.
Repayments £172.00, total repayable £20,603, interest paid £10,603.

So going off your scenario the secured loan whilst at a higher interest rate over a shorter term is the preferred option.

Option C.

However, if you can get a second mortgage to run alongside your original mortgage for a 10 year period, even if the interest rate is slightly higher than your original mortgage then that would still be a cheaper option.

Current mortgage 145,000 at 4.55% interest over 20 years
Repayments, say, £ 915, total repayable £ 219,370, interest paid £ 74,370.

Second mortgage £10,000 at, say, 10% interest over 10 years
Repayments £130.00, total repayable £15,574.00, interest paid £ 5,574.00.

[Michael Peoples]

There is a place for secured loans but the broker will be the one who does the fact find and recommends which is the best option. Personally I would not want to lose a good tracker deal and would prefer the flexibility of a secured loan as it allows overpayments and can be repaid at any time penalty free.
There will be more and more products available for IVA customers and more people will be able to release equity. The secured loan will be an option and once the sums are done as above, the client can decide what is best.

[Goosed]

nickjohn,

You are wasting your time I'm afraid.

Mr Peoples will argue the virtues of of the secured loans, completely disregarding the morals, ethics and tactics of the likes of the companies who are attempting the types of deeds that Rose68, and others are having to deal with.

The fact is that most debtors assume, come equity release time, they simply approach their current high street mortgage provider for their equity release borrowing, not have to scour the sub prime underground for any loan shark who will lend to them, I have seen posts from another IP stating that their 'clients' do indeed just approach their current lenders at the given time.

Just looking through some of the blurb in that Magellan info sheet,

Maximum LTV is 65%

Minimum salary of application 25k

Applicant must not have missed any secured borrowing payments in the last 12 months

No buy to let or right to buy properties considered for borrowing against

Possibly up to two guarantors needed !!! ( since when did a third party have to get involved in making sure my IVA criteria was met and agree to make payments if I can't)

I can see there being some real fun and games when a number of debtors come up to equity release time, with the complaints procedure being activated on a regular basis moving forward.

[UpToMyNeckInIt]

Nickjohn: You make a fair point about the 'income multiplier criteria'. But in many households of course only one of the 2 mortgage payers may be in the IVA, so this could still catch some people with partner's earnings being a significant factor come remortgage time.

I am in a similar position, whereby when we got the mortgage for our house, my Wife was working. Now that she is not, we are £25,000 a Year worse off (not to mention the fact that my hourly income rates have barely moved in 4 Years). So I too am hoping that me being forced to ask for more secured borrowing is met with a firm 'no', as the mortgage we have is 7x our current household income.

I suspect also that your 'Option C' is unrealistic. I stand to be corrected by an expert on this point, but: When you remortgage, you typically remortgage to cover your entire secured debt. You are not given the option to keep your existing prime mortgage, with a second sub-prime mortgage on top.

You can however keep your prime mortgage and, with your existing lender's permission, have a second secured loan on the property. Hence the example I made earlier.

You scenario c is effectively like a secured loan for 10K at 7.55%apr. Only the most stellar credit history customer is likely to get a deal like that. Those of us in IVA's certainly cannot unfortunately expect anything close.

Goosed: You touch on a good point as well about the fact that to be eligible for this remortgage product, the 'applicant must not have missed any secured borrowing payments in the last 12 months'.

So simple then to get out of it: If you think you are likely to get stuck with this sub-prime mortgage offer, simply be a couple of days late paying your existing mortgage. OK, so you might end up paying a penalty fee or a small amount of interest. But you also get a nice red flag on your credit file rendering you ineligible for this sub-prime product. Thus forcing your IP's hand to go with the 12-Month extension instead, saving you £thousands...

I have mentioned in an earlier post (some Months ago) that even sub-prime lenders have lending criteria like: 'Not missing a loan/credit card repayment in the last 6 months' (quite a common one that); or not going into 'unauthorised overdraft'.

So another option, if you have the £500 credit limit clause in your IVA, is to get a Vanquis Credit Card (accepted me, no bother) or similar, spend £10, be late paying it back the following month, incur at £12 'late fee' + a couple of quid in interest, and again you have rendered yourself ineligible for a lot of loans.

Alternatively, just go say £20 overdrawn for a few days.

...or do a combination of the above. Each one is easy to remedy.

(NOTE: in all cases, I am only suggesting being no more than a few days late, paying back whatever. I would never advocate going into a bad debt situation).

I would even suggest that even if this risked technically 'breaching' your IVA, accidentally-on-purpose having a 'bad month' is such a small, easy to fix breach, that your IVA will not be in danger of being terminated.

Not trying to start a fight with anyone, just a suggestion or two for people feeling 'compelled' to take out a sub-prime loan or remortgage.

[Goosed]

UpTomyNeckInIt,

You are only posting what most people will be thinking regarding missed mortgage payments or IVA conduct breaches after reading the `application conditions` blurb Michael kindly posted from Megallen,

Personally, I can honestly say I am more concerned and anxious now than I ever was before entering my IVA,

Concerned and anxious at the fact that there are IVA providers who have no reservations at all in stitching you up with hefty secured loans that could be with you until retirement, and after you`ve done your IVA `time`,

So long as they get their 15% out of whatever is realised for the creditors by whatever `refinancing` means necessary.

At least anyone contemplating an IVA visiting the forum will be able to see for themselves how their prospective IP`s or IVA providers practice and can make choices accordingly.

For me, my personal situation is set to change in the New Year income wise, and this will dictate what happens with my actual IVA in any case.

Hopefully by then, I will have made 45 plus payments, most at a much, much higher amount than expected and agreed by creditors.

My agreed dividend has already been passed, I just hope it holds me in good stead.