Support For Mortgage Interest Updates

Support For Mortgage Interest Effects in 2011

If you are a homeowner and are receiving certain income-related benefits you may qualify for help with your mortgage interest payments as part of your benefits. This is called SMI, Support for Mortgage Interest.

Income related benefits include:

  • Income Support
  • Income-based Job Seeker’s Allowance
  • Income-related Employment and Support Allowance
  • Pension Credit

SMI is normally paid directly to your lender for any loan or mortgage used to purchase or improve your home – it covers the interest portion of the payments only and does not cover arrears or insurance payments.

At the beginning of October 2010, the rate at which it is paid was cut by 40%. It fell from 6.08% to 3.63%. The reason being to align the SMI rate to the monthly base rate set by the Bank of England.

Homeowners claiming SMI who have a mortgage interest rate lower than SMI will be able to credit the excess they receive to their mortgage balance. However, those who have mortgage interest rates which are higher than the SMI rate will need to find the money to cover the shortfall.

At 6.08% a £100,000 mortgage balance would require interest payments of £649 – whereas at 3.63% the same balance would only require £303.

The difference, in this example, would leave the homeowner searching for an extra £346 a month. This could create enormous problems for homeowners already struggling with their payments as the new year approaches, a leading homeless charity has warned.

The Government has stated that the cut in the SMI rate was to avoid the situation where people who had a lower mortgage interest rate were receiving surplus SMI payments and therefore covering more than just the interest portion as intended.

A possible solution to this problem has been put forward by the Council of Mortgage Lenders and could be a way for the Government to recoup any over payments they make.

A second charge could be placed on any property that is receiving SMI payments – so in the event of the property being sold or remortgaged, costs can be recovered.

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