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Your Mortgage and Benefits

By: Paul Geraghty - Updated: 25 Jun 2018 | comments*Discuss
 
Your Mortgage And Benefits

For most people, a mortgage will be the major financial commitment of their life. Moreover, in most cases, it’s a commitment that usually has to be maintained uninterruptedly for 10 or 20 years. Failing to make payments on the mortgage can mean the loss of years of effort. For this reason, how the mortgage will be affected is often one of the chief concerns of anyone who experiences redundancy.

Unfortunately, most people who have just been made redundant and look to the government for help in keeping up with the mortgage payments are likely to be severely disappointed. Unless you live in a tent, the help available is extremely limited and comes with many conditions attached.

Income Support for Mortgage Interest (ISMI)

If you get Jobseeker’s Allowance, Pension Credit or Income Support, the government will help you pay the interest on your mortgage through a scheme called Income Support for Mortgage Interest (ISMI). But the help doesn’t begin until 39 weeks after you begin receiving benefits. Moreover, you are only eligible for this assistance if your mortgage is no greater than £100,000 in value. As the average British home now costs more than this, this is of no use to most home-owners. The law was framed in 1995 when house prices were much lower, but the threshold has not been adjusted since then.

Restrictions on ISMI Eligibility

There are other restrictions on the help you can get. For one thing, the government will only help you with the interest on your mortgage debt, not the repayment of capital. If you aren’t sure about how much of the payments you make cover interest only, you can ask your mortgage provider to tell you.

Second, ISMI payments will only cover you if you took out the mortgage before you went on benefits. If you extended the mortgage after going on benefits, you will only get help for the part taken out before, unless the newly extended mortgage was designed to pay for essential repairs or maintenance.

Third, your application for mortgage interest support may be rejected if your home is in a very expensive area or the government thinks it is too large for your needs.

Applying for and Receiving Help With Your Mortgage Payments

You can apply for ISMI by filling out the form MI 20 which you will get from the Benefits Agency. Your mortgage lender will have to complete part of the form. The government runs something called a Mortgage Interest Direct Scheme which allows lenders to receive the mortgage interest payments from the government directly. Not all mortgage lenders participate in it, however. If yours doesn’t, you will receive the money with your benefit payments instead.

Note that the amount which will be paid for you is based on the standard interest rate which prevailed at a time chosen by the government. What you actually pay may be higher or lower than this depending on the terms of your mortgage agreement; if it is higher, you will have to make up the difference yourself.

Changes to ISMI in the Offing

The as it stands in 2008 is described above. From April 2009, however, things are due to change slightly. The threshold mortgage value above which you will be ineligible for assistance rises to £175,000. Even better, help becomes available after 13 weeks on benefits, rather than 39 as at present. The support will be time-limited to two years, however. At present, there is no time limit once the assistance kicks in.

Mortgage Interest Run-on

If you start a new job, and have been getting help with your mortgage previously, the government will continue to pay your mortgage interest for four weeks after you begin work.

Mortgages and Benefits – Conclusion

For anyone not yet reduced to living in a tent, the mortgage help available from the government is rather limited. From 2009, though, some of the restrictions will be eased slightly, and the benefit should prove more generally useful to those who find themselves struggling with mortgage payments following a redundancy.

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[Add a Comment]
huddy - Your Question:
Im on Esa and used to get extra income from a properety I rented out I no longer have the proerty and have sold it Does the amout of money I have in my savings effect the amount of esa I can receive.

Our Response:
Unlike means-tested benefits, there is no income and savings test for contributory ESA. However, your ESA is reduced by half the amount of any pension or permanent health insurance payment received in excess of £85. Please see link here .
RedundancyExpert - 26-Jun-18 @ 10:00 AM
Im on Esa and used to get extra income from a properety i rented out i no longer have the proerty and have sold it Does the amout of money i have in my savings effect the amount of esa i can receive .
huddy - 25-Jun-18 @ 4:02 PM
VIT - Your Question:
Could you lease explain if a young man of 16 does not sign on or claim benefits then how does this affect his state benefit.

Our Response:
I'm not quite sure what you are asking. But a young man of 16 should be either in full-time education, or working. If he does not do either, then he is not entitled to claim benefits until he is 18, when he may be able to claim Jobseeker's Allowance.
RedundancyExpert - 20-Jun-17 @ 3:18 PM
Could you lease explain if a young man of 16 does not sign on or claim benefits then how does this affect his state benefit.
VIT - 20-Jun-17 @ 1:31 PM
I claim esa due to depression and emphysema and have recentlyresigned from work as they wanted to know if and when Iwould return as Iamunable to say when or if Iwould be returning to work it was thought best that Istop my employment. I have just received holiday pay and want to know if this will affect my benefit entitlement
J - 14-May-16 @ 8:10 PM
I am currently on 3 months notice, leading to redundancy in September, I have over 20 years service and therefore will receive the maximum redundancy allowed under government regulations, approx. 13,000. I have never claimed benefits before and need advice on when I should approach the benefits system. In addition I have a mortgage (interest only) of £125,000, I would like to know my rights and what help I can receive, if I cannot find another job by September, I am 55 years old and have applied for numerous positions in the last few weeks with no luck, yet.
Jimmy - 27-Jul-15 @ 10:49 AM
@Sarah - I don't quite understand what you are doing with the property, so you may have to re-phrase that question. I also can't answer the question on whether you father buys him out should you get a mortgage. It depends whether you father wants the mortgage in his name, or whether you will go joint. As far as benefits are concerned, if you have no savings, you should be entitled to benefits and the Turn to Us website should help you there.
RedundancyExpert - 24-Apr-15 @ 9:46 AM
@Sarah - you can find out the benefits you are entitled to via the Turn to Us link here. I hope this helps.
RedundancyExpert - 23-Apr-15 @ 2:21 PM
What my query basically is shall I leave our current shared property once I buy him out in my fathers name or in my name. If I live in an owned property with no mortgage will it affect my benefits at all ? There won't be any capital savings it will all be tied into equity of the owned property. Thanks Sarah
Sarah - 22-Apr-15 @ 5:32 PM
I am soon to be divorced and wondering about benefits for my children. I will be entitled to child benefits and child tax credits and working tax credits etc. I am wondering if my father pays off the mortgage and buys out my soon to be ex husband , will I be entitled to all the above benefits if I am living in an owned property with no mortgage. Or is it better for my father to own the mortgage in his name . Thanks Sarah
Sarah - 22-Apr-15 @ 12:55 PM
@neveragain - I couldn't really advise on this subject as it is a rather grey area. If you have off-loaded capital (deprivation of capital) in order to to retain benefits then the DWP can categorise it as 'notional capital'. You may be interested in the CAB Universal Credit guildelines under the section: What happens if you've got rid of your capital? See link here. I hope this helps.
RedundancyExpert - 19-Feb-15 @ 11:24 AM
I just found out I have a works place pension, one option is to take £14,000 now and get a smaller payment from them. However if I take the cash lump sum, I currently get ESA and can only have £6000 in savings, I can pay for funeral plans, they said that would be ok, but what else could I spend it on that they will except?
neveragain - 17-Feb-15 @ 5:31 PM
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