If you are on a particular type of benefit and you are struggling to pay your monthly mortgage repayments then you might be able t get some help from the government to pay the interest portion of your monthly mortgage repayments. This is known as the support for mortgage interest scheme
In this brief guide we will explore the scheme further and other alternatives if you are struggling to keep up on your monthly mortgage repayments.
What is Support for Mortgage interest?
Support for mortgage interest is a government support scheme for homeowners who receive specific types of benefits from the government. Support for mortgage interest is provided by the government to cover the interest portion of your mortgage repayments. The support for mortgage interest scheme will be paid directly to the mortgage lender. This SMI loan must be repaid when you sell your house or if you die.
If you die and your property passes to your partner then the loan will need to be paid back when they die. The money owed will be recovered by the department of works and pensions once your house is sold. The amount you owe can be repaid at any time and the minimum you can repay at any one time is £100 or the full outstanding balance.
If you were receiving the support for interest mortgage benefit when this new system came in to place you will not be required to repay back the benefit but any future applications you make for SMI will be given to you in the form of a loan.
This new format for SMI came in to place on the 6th of April 2018.
In an instance where you cannot make financial decisions for yourself or are impaired then you will be able to apply to continue receiving support for mortgage interest as a benefit.
With the support for mortgage interest the UK government will pay the interest on mortgages up to £200,000 or £100,000 if you are getting pension credit.
The government uses a basic interest rate calculation to work out how much interest they will pay on your mortgage.The calculation the Government uses might differ from the one the mortgage lender uses and this means you could end up getting less interest from the government than how much interest your mortgage lender charges you.
The interest the government will use is also variable as it is set by the bank of England this means that it can move up or down. This might be in line with your mortgage if you are on a variable mortgage but if you are on a fixed rate mortgage then the payments received from the government towards your mortgage interest could be lower.
Can you get support for mortgage interest on a home improvement loan?
If you currently have a home improvement loan included in your mortgage you will be able to get the support for mortgage interest if you have taken it to cover:
Buying a partners share of a property after you have separated
Important repairs to your home such as roofing, installing boilers or changing your home to fit the needs of an ill person or disabled person.
How long can you get the support for mortgage interest scheme help for?
If you are currently claiming the Jobseekers Allowance, you can only get the SMI for up to two years.
Who is eligible for the Support for mortgage interest(SMI)?
To be eligible for the support for mortgage interest you will need to:
Be currently unemployed or at the stage where you qualify for a UK state pension and either;
Be on income support
Be on universal credit
Be on pension credit
When you apply for the support for interest mortgage scheme and are accepted you will have to wait for 39 weeks before any payment will be made to you. This is the case for everybody except those who are claiming pension credit who will get the SMI help immediately and in the form of a benefit not a loan.
If you become employed during this 39 week waiting period or you do any paid works then you will become ineligible for the support for mortgage interest scheme and you will only be eligible to claim when you become unemployed again.
How does the Support for Mortgage interest work(SMI)?
- The support for mortgage interest is a loan
- You don't make any monthly repayments except you want to
- There are no loan fees
- There is no need for a credit check before you get the loan so those with little or no credit history will be able to get the SMI loan. You should still considerbuilding your credit as it will help you qualify for more financial products.
- Interest is charged to the loan until the loan is cleared by you paying it off or if it gets written off.
- You have to apply for the SMI. It isn't an automatic benefit.
- The loan is secured against your house and you will need to pay it back when you sell your home or if you die.
How is the interest on the support for mortgage interest charged?
The interest charged on the support for mortgage interest loan is a variable interest. It is charged daily. The interest is subject to change but this can only happen twice in any year.
For everyday your support for mortgage interest loan is unpaid you will be charged interest
Example of an SMI charge
If you receive £50 each week towards the interest on your mortgage. The total help you will have received is £2600 (£50 x 52 weeks). This, plus the interest your charged (currently 2.5%), is the amount of your Support for Mortgage interest loan.
How to repay your support for mortgage interest(SMI)loan?
You can repay your support for mortgage interest loan in different ways including:
Using your savings:
You can use any savings you have to pay off your SMI loan. The earlier you do this the better as interest is charged daily on your SMI. Remember at the point which you are getting your SMI loan or during the 39 week waiting period you cannot have more than £16,000 in savings or £10,000 if you are getting pension credit.
If you have over £6,000 in savings or investments when you are getting the SMI loan or during the 39 week waiting period then the amount of SMI loan you get might be reduced. This is also the case if you are currently on pension credit.
You can ofcourse use this money to pay off some of your SMI loan and increase the SMI loan you receive in turn.
Use the Equity in your home:
You can use the equity in your home to pay off your SMI loan once you have sold your home. If there is not enough money left over once your home is sold to repay back the support for mortgage interest loan then the remaining amount will be written off by the department for work and pensions and the loan will the be considered as settled.
Using a personal loan:
You can use a personal loan to pay off your SMI loan. You should ensure you get a loan which is not secured against your property as if you miss any repayments on your personal loan then you will risk losing your home. You should ensure that you have a good credit score before applying for a personal loan. If you don't have a good credit score you will need to build your credit to ensure you will be eligible for cheap loans.
Get repayment help from your mortgage lender
Your mortgage lender will like to ensure you don't miss any mortgage repayments and will be happy to help you by offering you options usually found on flexible mortgages such as mortgage payment holidays. You can also look to remortgage to a cheaper mortgage and include the cost of your SMI loan in this remortgage.
Your mortgage lender can also increase your mortgage term which will reduce your monthly mortgage repayment and allow to have more disposable income to put towards repaying your SMI loan.
Buy a cheaper home to repay your SMI loan
If you sell your current home and buy a cheaper home you will need a cheaper mortgage and hence you will have a cheaper monthly mortgage repayment to make as well as have some income from the equity(if possible) of your old home. You should take into account the cost of moving homes including costs such as stamp duty.