4th Year Release again - sorry!!

[spenmotherhen]

Hi Folkes

Sorry to harp on about this 4th year release clause. It still is a bit unclear in some areas.

At present we are paying a 99k interest only mortgage, we have an estimated equity of 25-30k.

As our IVA states that we will have to remortgage upto 75% LTV in the 4th year, how will this work when we are already at the 75% of our LTV with our present mortgage?

Does this mean we pay the 60 months without releasing equity?

Does our mortgage company (Northern Rock) have any hold over us once the IVA finishes and we decide to sell our property, if they do not receive all of their money back? We had the Together mortgage and the unsecurred element was included in our IVA.

We are deciding on the best way forward at present to enable us to pay as much as we can back to our creditors. Therefore an early release through a house sale now may give our creditors a larger return rather than not being able to receive the equity in the 4th year due to already having a mortgage at 75% LTV.

Hope this makes sence.

What do you reccomend?

Thanks for your advice

[Adam Davies]

Hi
If,by the time you are required to remortgage,your LTV is 75% then you will not need to remortgage and your IVA will finish at the end of the 60 month[as long as there is not a clause to extend it by a year instead of equity].
Once your IVA is completed and you sell up NR will not be able to 'take' any money for the unsecured debt as this would have be written off at the end of your IVA and is no longer a debt.
Regards

[spenmotherhen]

Thanks Andy for your info.

Our IVA states that equity release in the 4th year or at the creditors discretion a further year fo payments . Doe sthis mean that we finish our IVA in 5 years or 6?

Thanks again for your time

[MelanieGiles]

You will only need to pay for an additional year in the event that there is equity to be raised. If you want specific advice as to the provisions contained within your proposal, could you reproduce them verbatim so that we can look at them, alternatively check this out with your IP who will able to give you specific advice as they have detailed knowledge of your case.

[olympic_torch]

Melanie
As mentioned previously, i have the same clause as spenmotherhen, ie an option to extend IVA by a further 12 payments.
If we have equity in our property, can we be forced to realise it, even if it places us in serious financial problems?.
At todays rates it certainly would.

[MelanieGiles]

I really need to see the exact wording of the clause Olympic, to be able to advise properly. Could one of you type it out onto the forum please, so that I and the other experts can have a discussion.

It is not presently clear to me at present what triggers the extension to a sixth year.

[olympic_torch]

As before, i seem to have my clauses mixed up.
Having read my chairmans report yet again, the extension to 72 months applies if i wish to reduce my payments by less than 15%.
My equity release clause states:
"In the 4th year of the arrangement an open market valuation of the property must be provided to the supervisor together with a mortgage redemption figure.
The debtor must obtain a minimum of 2 offers of re-mortgage which address the debtor's share of any equity therein and provide documentary evidence of each to the supervisor.The debtor must accept the offer which provides the greatest return to creditors and 100% of the debtors shre of such proceeds must immediately be paid into the arrangement.
Monthly contributions may then cease in order to accomodate an increase in mortgage payments and the supervisor may take steps to conclude the arrangement having first written to creditors to ensure there are no objections to the the IVA being completed early.
Should the debtor be unable to realise his equity in this manner, the supervisor must convene a general meeting of creditors to consider the debtors options"

My finger hurts.
Sorry for long, self-indulgent post.

[MelanieGiles]

OK - so in laymans terms.

1 You pay your contributions as normal until the end of the third year, and then on until the equity release provision is finalised.

2 During the fourth year, you obtain an open market valuation of your property - I would suggest initially asking a local estate agent for an opinion of value - and then approach a mortgage broker to see whether you could raise any equity against the property. If this seems likely, you are required to get two offers of remortgage - but in reality a letter from the mortgage broker as to the fact that this is the best you will be able to do is likely to suffice.

3 You will probably only be allowed to raise up to 85% loan to value - so if your house is worth £200,000, you will only be able to raise £170,000 and that firstly must be used to discharge your existing mortgage. Half of the balance belongs to Mrs Torch (Is she also in an IVA), so you would be required to pay the balance over to the Supervisor of your IVA.

4 Assuming that your new mortgage payments will absorb the monthly payments you are making, you can then stop your IVA payments and the IVA can be concluded early.

This is all fine and dandy - and potentially gives you an early "Get of of Jail" card, but you will need to be careful that you also do not have a minimum dividend clause which may prevent you from finalising the IVA early.

If you cannot raise any equity, the Supervisor is required to call a meeting of creditors to consider the way forward, which is likely to be carry on paying until the end of the fifth year.

Hope this makes sense, but it is one of these things which can only really be addressed at the time.

[olympic_torch]

Wonderful as always Melanie.
Yes, Mrs Torch and i have a joint IVA.
I realise things can change, but based on current figures:
Current IVA payment = £220 per month.
Current mortgage = £800 per month.

Based on current 85% valuation my "New" mortgage payment would be approx £1200 per month, putting us in serious do do.

[MelanieGiles]

What is your property worth now and how much do you owe on the current mortgage?

And do you have a minimum dividend clause anywhere in those IVA proposals?

[olympic_torch]

Melanie
Sorry, didn't get on tinternet last night.
Righto, as they come then:
property value approx 140k
balance on mortgage 93k
minimum divi 38p

[MelanieGiles]

So on the basis of 85% loan to value you could raise £119,000 and would then need to pay off your existing mortgage leaving £26,000 to pay over to creditors. Seems fine and dandy - however you are only paying £220 into your IVA at present, so are unlikely to be able to afford to service ongoing mortgage payments at that level.

If I were your IP, I would work in conjunction with you and a mortgage broker to establish what you would be able to borrow. It may be that you cannot afford to borrow more than £10,000 extra - based upon your disposable income of £220 - and that would suffice the requirements of the modiciation - which is relatively loosely worded and woolly.

You see your modification only really requires you to do what you can, and is in someway therefore quite helpful. Are you currently paying your mortgage on a repayment basis, as this is just making the equity figure larger with each payment you make? Might be better to consider switching to interest only now, upping your IVA payments and asking the IP to take this into account against future equity.

[olympic_torch]

Melanie.
Yes, repayment mortgage.
I was a bit worried about swapping to interest only, as i was unsure what long term effects this might have as i did not buy my property until i was 40, i will be 65 when it finishes so did not want to jeopardise it extending into my dotage, but am open to advice and instruction !

[MelanieGiles]

Best you speak to a properly qualified IFA Olympic - I can personally recommend either Andrew Graveson or Tony Parsons and have worked with both of them for a number of years.

You are only a couple of years away from needing to look at this, so some long-term planning advice at an early stage would be sensible.

[olympic_torch]

Melanie.
Based on the figures to hand, there is no way i could afford the increased mortgage payments, to quote an old saying, i would be lucky to end up with a pot to pee in, let alone a window to throw it out of.
Can i be forced to raise equity when the time comes despite any financial hardship?.