Mum took out an interest only mortgage. Worried?

[inarmsofanangel]

Hi, long story short. I split from husband with my three kids about a year ago. Not yet divorced so didn't have money to buy myself. I was looking to rent somewhere near my mum.
We didn't find anywhere suitable at the time (well my mum was looking for me as I was a long way from area)
She then had this 'brilliant' idea of buying a house instead and I'd rent it from her. I didn't ask about any of her financial stuff or anything about the mortgage ect - why should I as it would be hers anyway?
Anyway, she had said ' Oh it will be an investment and in your interest ect ect.....
Until I asked for rent purposes if she was able to cover it from the rent. She slipped that she was paying £300 a month (I pay her £670) and told my brother it was an interest only mortgage.
I realised then that this wouldn't really be helping with any investment ect and just forgot about it, even though my brother thinks I am paying too much for the area I am in.

But, i then started reading up a bit and got a little worried. What happens is she passed away without repaying it?
How would she repay it?
I'm not concerned too much but am just wondering if this could affect us, the children. Would we have to pay this debt off at the end?
I'm a bit confused by the whole process.

At some stage the mortgage will come to an end and need repaying. It is likely to be 65 at the latest, so I would talk to your mum. Unless there is another way to raise finance or extend the term (may be possible, but will depend on affordability, or buy to let'structure), then the house would need selling.

If your mum is older they may not have allowed her a very long mortgage. So she may have to remortgage sooner rather than later.

If she passes away without any means of paying it off then yes it will have to be sold.

If the mortgage is £300 and you're paying £670 what is she doing with the £370 difference? Paying the capital or keeping it?

I'm not sure if it is still the case, but until very recently, it was the done thing for BTL mortgages to be interest only. Your mum might also be saving up to pay off the capital.

You won't automatically be liable to pay off the capital, as you are not named on the mortgage, but if your mum dies, then her debts including mortgage will need to be paid off using any assets she has, which may include selling the house, if she doesn't have other money or assets.

However, you would also need to see what is in her will. It could be that you and your brother are her sole inheritees and everything would need sorting out. Maybe you should talk to her about your concerns. It can be helpful to sort these things out before they are needed so things aren't done in a panic at difficult times.

There is also the issue of what happens if your mum needs care and her assets need to be sold to fund it. Does she have her own house as well?

If the mortgage is £300 and you're paying £670 what is she doing with the £370 difference? Paying the capital or keeping it?

It will be liable for tax etc so it isn't £370 plus gas certificates, landlord insurance etc etc maintenance of the property, She will all have had initial costs, required a deposit and stamp duty. I doubt that she is raking it in.

Buy to let are often interest only and since the tax changes this year landlords can only claim relief on the interest.

She'll just have to sell the house to repay the mortgage. Since it isn't her residence it won't matter. She'll get the capital gain plus any profit she's made from renting it out

She'll get the capital gain plus any profit she's made from renting it out

less income tax and capital gains tax.

BTL mortgages are not regulated in the same way so it was possible to take on interest only mortgages lasting till you were in your 80s.

However the banks do this because these are assets they can sell. They normally require that any tenancy agreement is for less than 12 months and that properties are not let to family members.

In short if your mother has got a BTL mortgage she is almost certainly breaking the terms of the agreement by letting to family, and she has probably only given you a maximum of 12 months security and more probably, if you have been there over six months, you are on two months notice.

She needs to level with you. If your brother is right about rents in the area you could be better off renting commercially. Limited security but at least you would know where you stood.

Well obviously dailymail

Just another thought - does the lender know you are relatives? Often this isn't allowed.

Does your mum have any life insurance? If she takes out a policy with a sum assured for at least the value of the mortgage then the debt can be covered in case she dies during the mortgage term.