I've been reading some horror stories about people being made to take out secured loans if they can't release equity meaning they're the tied in to an horrendously high interest rate loan for years and years. Can an IP make you take out a secured loan? Can we insist on 12 months extra payments instead?
It depends on the conditions you agreed to. Pre 2014 standard conditions were, basically, "attempt to remortgage and if this fails pay an extra year". Post 2014 conditions became "attempt to remortgage or take a secured loan and if this fails pay an extra year". The extra year is the fall back option and not one you can choose if the others are available.
Many IP's still do not use the post 2014 terms, so, even if your arrangement is post 2014, check the actual terms used.
There is a lot of misunderstanding about what has actually been happening of late. A couple of the 'big boys', Aperture and Creditfix among them, use a broker to check the equity release situation and, even if the secured loan option isn't mandatory have, if a product is available, been offering a secured loan as an alternative as this sometimes works out a better solution. For example .. a remortgage means refinancing the whole home loan at higher rates (due to bad credit scoring), whereas a secured loan for the much smaller amount to be released can be refinanced, after the credit score improves, to High Street Rates. Some people also choose a secured loan over [EDIT: 'over' here means in preference to a 12 month extension .. NOT a term of 12 months] the extra 12 months, just to get out of the IVA!
In many cases they are simply giving you the option --- nothing that is not in your agreement can be forced upon you. Re-read what you have actually agreed to so that you are forewarned .... and forearmed.
My opinions are merely that .. opinions based on experience. Always seek professional advice.
IVA Completed 23rd July 2013 .... C.C. 10th January 2014
Hi there
We we t with the secured loan option last year despite it not being in our original T&Cs.
Select talked us through and we decided it was an ok option for us.
We didnt want to lose our high street mortgage and get a full remortgage with bad credit lender.
We couldnt afford the mortgage fees etc that went with a full remortgage amd we didnt want to be tied into our IVA for another 12 months.
The secured loan is high rate but its half the price the iva was. Its secured on this house so when we move we will pay it off so not ‘stuck with a high rate mortgage for years and years’ like people think whenthey see ‘25 years’ on the document.
We were free from our iva weeks after we completed and credit rating is improving.
Its taken a much smaller amount of equity than I ever thought it would. Select (who creditfix use) were very helpful and informative and I felt that they were working for me even though linked to CF. We are using them again now for a mortgage to move.
They clearly explained that the equity release loan was only for 12 months then they get in touch again to see if able to do anything with high street lender to get better rates.
I think these horror stories are when people dont fully understamd what they are signing up for.
Done properly there are clauses and safety features int he iva terms to help you get financial benefit.
We wanted out of our iva after 5 long years and by doing the loan we are and still have our high street mortgage low rate. Make sure you understand everything. Read small print and think how each option can affect your future. Secured loan option aremt all bad. Justbone option might work better than another for your circumstances
Thank you. Can I ask what you mean by the secured loan is only for 12 months? I've read stories such as they loans are for 25 years and the pay back would be tens of thousands?
The secured loan will be longer than 12 months unless you can pay it off earlier.
Sharing from experiences of dealing with debt
The greatness of a man is not in how much wealth he acquires, but in his integrity and his ability to affect those around him positively.
Bob Marley. http://kallis3.blogs.iva.co.uk
Depends on what equity would be if you were able to release it.
Sharing from experiences of dealing with debt
The greatness of a man is not in how much wealth he acquires, but in his integrity and his ability to affect those around him positively.
Bob Marley. http://kallis3.blogs.iva.co.uk
Thu Jun 13, 2019 4:58 pmNickibu82 wrote:
Thank you. Can I ask what you mean by the secured loan is only for 12 months? I've read stories such as they loans are for 25 years and the pay back would be tens of thousands?
Apologies -- my post was misleading and I have edited to explain what I meant.
My opinions are merely that .. opinions based on experience. Always seek professional advice.
IVA Completed 23rd July 2013 .... C.C. 10th January 2014
Sorry i didnt explain that properly....It technically is over 25 years but we wont ever pay it for that long.
Its secured on this house so as soon as we sell it willbe paid off there and then.
Select said theyd get in touch with us in 12 months to see if they can get better rate on it or remortgage.
It is over 25 years which makes figures look extortionate.
You will only be able to release what a lender will lend you based on your affordability and the monthly payment must be 50% of your IVA payment(thats in your iva terms).
I thought wed have to release thousands as have significant equity but because of all the clauses amd affordability it was a hell of a lot less than what i was imagining.
More than what 12 months extension would have been but freedom from IVA restrictions sooner.
Thu Jun 13, 2019 5:10 pmNickibu82 wrote:
Thank you. How do they work out how much the loan would be for? The original debt was 38k and I pay 425 a month.
First they need to calculate how much equity is potentially available --- they have to leave you with 15% value of the house, so 85% of the equity is taken into consideration. Then they have to see what amount you could borrow with a maximum repayment for that loan of 50% of the IVA payment and a term limited to retirement age or the end of your current mortgage, whichever is later. On top of that they have to consider the individual lender's limits as to what they are willing to lend. All of that is also limited to the amount you would have to pay in to pay off the full debt and fees (statutory interest is usually excluded in equity release).
My opinions are merely that .. opinions based on experience. Always seek professional advice.
IVA Completed 23rd July 2013 .... C.C. 10th January 2014
Thank you. We're still a clue years away but it does worry me that'll I'll be paying this off forever! By the end of the five years I would think we'd have about 20k equity. Does it count all of the equity or just my 50% share as my husband is on the mortgage and not in the IVA? I think with all the interest on top of the 38k and having paid 425 per month, I'd be left owing around 15k at the end of the 5 years?
Thu Jun 13, 2019 5:35 pmNickibu82 wrote:
Thank you. We're still a clue years away but it does worry me that'll I'll be paying this off forever! By the end of the five years I would think we'd have about 20k equity. Does it count all of the equity or just my 50% share as my husband is on the mortgage and not in the IVA? I think with all the interest on top of the 38k and having paid 425 per month, I'd be left owing around 15k at the end of the 5 years?
It is all based on just your share of the equity.
My opinions are merely that .. opinions based on experience. Always seek professional advice.
IVA Completed 23rd July 2013 .... C.C. 10th January 2014
Thank you all for your helpful responses. I shouldn't really be worrying yet. I've still got 2 years of the original term so anything could happen but I'm just worried this will impact on my family for a lot longer than the original 5/6 years. Thanks again.
I think youll be pleasantly surprised.
It will be based on your share of the equity.
So much criteria for the loan to meet which Foggy has listed.
I thought theyd take 15% of my equity but they dont.
They can only get what the lender will consider lending based on affordability criteria.
You wont be left with this for 25+ years.
The horror stories are very often exaggerated and there are a number of key clauses in your IVA which will ensure that, even if a second charge mortgage (secured loan) is the appropriate solution for you, a good level of protection is afforded to you. It will entirely depend on your own circumstances but also bear in mind that (and this is the only time I would argue this), often a higher interest rate may actually suit you! This is because one of the standard rules in the IVA protocol is that the increase in your total mortgage payments can't exceed 50% of your IVA contribution....so the higher the rate, the lower the amount you need to raise, and therefore the more equity you keep in your home. My advice is to keep your mind open and check all of your options before you come to any conclusion.
Specialist Mortgage Advisers. Highly Commended at the British Mortgage Awards.
