It is possible to remortgage during an IVA. However it will depend on the equity in your property, your income and the reason for remortgaging.
- Will you be able to Remortgage during an IVA?
- Can you be forced to release home equity?
- What if the property is in joint names?
- Could you settle your IVA early by Remortgaging?
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Will you be able to Remortgage during an IVA?
If you are a home owner remortgaging your property during an IVA is possible. Over the past few years a number of mortgage companies have entered the market who will consider lending to you.
Having said that you will normally only be allowed to remortgage for the purpose of settling your Arrangement. In addition you will usually only be able to borrow up to a maximum of 85% of the value of your property.
You will have to meet the lender’s affordability tests. It is unlikely you will be able to borrow more than 4 times your gross income either on your own or jointly with someone else). If you are on a low income this may reduce to a multiple of 3.
You will only be able to remortgage during an IVA for the purpose of settling the Arrangement early. It is not generally possible to release equity for other reasons.
Can you be forced to release home equity during your IVA?
As a home owner one of the conditions of your IVA is that you will have to try and remortgage. This is normally required in the 5th year of the Arrangement. However you will only have to do so in certain circumstances.
The key criteria is that there must be more than £5000 of equity in your property. This is based on valuation of 85% of the property’s true worth. If on this calculation you have no equity the requirement to release equity is ignored.
If you started your IVA after January 2014 it is likely that you will also be obliged to investigate equity release using a secured loan.
Given you have equity your monthly secured debt payments can only increase by a maximum of 50% of your current IVA payment. This will significantly restrict the amount of any remortgage or secured loan you are required to take.
You may be unable to remortgage or get a secured loan to release equity. In that case your IVA payments will be extended for an additional 12 months instead.
What if the property is in joint names?
One of the rules of debt repayment is that no third party can ever be forced to pay debt which is just in your name. This is the case even if you are married.
As a result of this if you own a property in joint names the other party’s share of any equity is protected. You cannot ever be asked to release more than your share to repay your debts.
The amount of any remortgage or secured loan you have to take to meet the conditions of your IVA is limited to the value of your share of the equity.
If both property owners are in an IVA (often referred to as a joint IVA) then 100% of the equity in the property must be considered.
Could you settle your IVA early by Remortgaging?
If you are able to raise a lump sum during your IVA it might be possible to settle the Arrangement early. As a home owner one way of doing this is remortgaging to release equity from your property.
The amount you will need to raise will normally have to be equal to the total of your outstanding monthly payments. However a small discount can be usually be applied in recognition that your creditors are being paid early.
Remortgaging to settle your IVA early can bring certain benefits. You should be able to get a discount on the amount you repay and you get an early release from the other restrictions of the Arrangement.
It is more difficult to remortgage in the first 2 years of your IVA. During this time lenders are only likely to offer a mortgage of up to 75% of the value of your property. From year 3 you might be able to borrow as much as 85% of the value.
Your home may be repossessed if you do not keep up repayments on your Mortgage or other loans secured upon it.