Capital Rasing on 2nd Property to reduce Residential Mortgage Debt
Posted on 15 September 2010 by MR CHRIS.W.RADFORD
Our house is valued at £220k, our SVR mortgage with Northern Rock is £202k. I bought 1 house worth £140k with no mortgage 10 Years ago so my mother in law could live out her days rent free and it would be transferred to us on her death as her will says. We also bought my parents Leasehold flat 5 years ago on the same principle, this also has no mortgage and is worth £120k. We are now struggling with our repayments and need to reduce our Interest only mortgage. Can I re-mortgage my in laws house and we act as guarantors, (a 91k mortgage at low rate is appealing) and use the money to clear some of our interest only mortgage? Would we get a mortgage in today’s climate? If nothing is possible we will have to sell our dream home and move in with the mother in law. Any advice would be gratefully received.
On the face of it you should be able to raise capital on one of the other properties and use it to reduce the mortgage outstanding on your main residence. However, this will depend on the answers to a great many questions and even then it may not leave you in a better position.
As the property is held in your Mother-in-law's name you may have trouble arranging a mortgage due to her age, income or both. These are issues even with you acting as Guarantor and a Lender will also want to ensure that any mortgage is in your Mother-in-law's best interests and that she is not being bullied into taking it out.
I presume you have chosen £91,000 as a figure because this is 65% of the value of your Mother-in-law's house. This loan to value will certainly give you access to some of the cheaper rates on the market and once you have reduced the balance on you existing mortgage could reduce the monthly payments by as much as £550. Bear in mind that you would then have a second mortgage of £91,000 and this would reduce the savings by around half.
You also need to take into account the costs of setting up a new mortgage and check whether you are still within an early repayment charge period on your Northern Rock mortgage. I would suspect not, but you don't want to find yourself suddenly have to find £1,000s. The costs of a new mortgage could include a product fee, a valuation fee, solicitors charges and bank charges. There are deals on the market at the moment that would cover the majority of these for you but they normally come with a premium on the interest rate.
I recommend that you speak to an independent mortgage adviser about your situation. Following a full factfind they would then be in a position to research the mortgage market for you and calculate some proper figures about the possible savings. When speaking to them you will be asked for confirmation of the properties ownership, your Mother-in-law's age & income, your own income and expenditure details and how you intend to repay the mortgage at the end of it's term.
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