Support for mortgage interest: A loan from the government which helps with mortgage costs | Personal Finance

The government provides a benefit called “support for mortgage interest (SMI)” which is designed to help those who are struggling with interest payments. SMI could help with payments on a mortgage or loans taken out for certain repairs and improvements made to the home. It should be noted that this support is paid as a loan, which will need to be repaid with interest when the house is sold or ownership is transferred. There is no guarantee that SMI will be given and there are strict rules for what it cannot be used for. SMI cannot be used to pay for the amount borrowed – it is only for the interest itself on the mortgage. It also can’t be used towards any insurance policies the person has or any mortgage arrears.

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To qualify for an SMI loan the claimant will usually need to also be receiving another benefit.

At least one of the following will be needed: income support, income based jobseekers allowance, income related employment and support allowance, universal credit or pension credit.

The loan can start to be received from the date that pension credit is received, after there has been nine consecutive universal credit payments or after any other qualifying benefit has been claimed for 39 consecutive weeks.

To check if a person qualifies under these parameters, the relevant office will need to be contacted. This will be either the Jobcentre Plus, the Pension Service or the Universal Credit helpline.

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Interest rates

Rising interest rates on mortgages could hit homeowners hard (Image: GETTY)

Costly mortgages

With housing costs rising more may need to take advantage of schemes like this (Image: GETTY)

The amount that a claimant receives depends on how much the interest is on the mortgage.

The amount will also be affected by what kind of other benefits they’re receiving.

A claimant can receive up to £100,000 if they are getting pension credit and they started receiving another qualifying benefit before January 2009.

If the claimant is already getting SMI and moves to pension credit within 12 weeks of stopping their other benefits, they could get help with interest on up to £200,000. For eligible claimants, the SMI will normally be paid directly to the mortgage lender.

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However, just as is the case with all types of loans and credit agreements, interest rates are factored into the amount given as well as what will be paid back.

The government state that the interest rate used to calculate the amount of SMI a claimant will receive is currently 2.61 percent.

As noted earlier, SMI will need to be paid back once the house is sold or ownership is transferred. The interest added to the loan can increase or decrease but it will not change more than twice a year.

Currently, the repayment rate is 1.3 percent. It is possible to pay back the loan more quickly for those who wish and are able to do so. Voluntary payments can be made but the minimum is £100 or whatever the outstanding balance is if it’s less than £100.

Goverment

As the Government provide the loan the repayment rules are somewhat relaxed (Image: GETTY)

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While the loan will need to be paid back if the house is sold, the government makes a point of stating that the claimant will not be asked to sell the home in order to repay the SMI loan.

The rules for repayment also appear to be relatively relaxed. The SMI loan will be paid back from what’s left after the mortgage (and any home improvement loans) have been paid.

If there is not enough to pay some or all of the loan, the claimant will not have to pay it back and it’ll be written off.

To find out how much needs to be paid back, DWP loan repayment can be contacted and asked for a settlement letter. This letter will detail exactly how much needs to be paid.

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Loan repayment

It must be remembered that this support is in the form of a loan (Image: GETTY)

While this scheme is designed purely for interest rates on mortgages, the government highlights that there are still a number of other options for housing support.

Someone receiving income support, income-based jobseeker’s allowance or income-related employment and support allowance could have their benefits stopped if they start earning more money.

“Mortgage interest run on” is a scheme that can provide extra money towards housing costs while other benefits are halted.

On top of this, there are free government resources that provide housing advice which include Citizens Advice and the Money Advice Service.