I need mortgage advice!

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R.Y.K. LEE

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Hi everyone,

I don't suppose there are any of you here who have experience in paying off their mortgage (very) early via a large lump sum, or do any of you work for a mortgage lender, or is a mortgage advisor?

I have recently been fortunate enough to be offered a lump sum of money from a relative, to help settle our mortgage.

I have had the mortgage since December 2016 and have never missed a payment. I have another 22 years left to pay it off.

If I were to accept the offer, and pay off our mortgage this early (within 3 years, out of the 25 years). Will this trigger alarm bells with the mortgage lender, and will the payment be treated with suspicion as to where I had acquired such a substantial lump sum from (e.g. money laundering, fraud, criminal activity etc).

Have any of you done exactly the same thing, and have the payment go through smoothly without issue? e.g. Payment received and balance fulfilled. Closure of mortgage account, and receiving letter of confirmation from lender. Getting the deed to the house. Or did you have your payment frozen, and questioned?

First of all, for clarity. I am not trying to do something illegal! The money offered by my relative has been earned legally, and from a savings account.

The reason I am asking is because I am stuck in an odd (and frustrating) situation at the moment. The same relative is the one who helped us pay for the deposit on our house. But when we initially applied for the mortgage, he had to jump through hoops, involving his solicitors etc to get the funds cleared. A part of it required him to provide the lender with 6 months worth of bank statements, to prove that the funds had been available for a lengthy period of time. Not funds that had mysteriously popped up in his account and left just as quick etc.

As an old fashioned, traditional person that he is, he was very upset by this process and angry, as he thought it was an invasion of his privacy. He said he had done nothing wrong and broke no laws, but felt like he was being treated with suspicion/like a criminal. He said he would never want to go through that again.

I'm sure some of you here are enjoying a mortgage free life, and some of you, like myself, are dreaming of the day.

My predicament is that I now have funds to potentially life a mortgage free life, but if payment is not as straight forward and smooth as it seems with such an early/large payment, and it does get questioned, said relative will refuse to aid in the clearance of the funds because they are fiercely defending their right for privacy.

Any advise at this point will be immensely appreciated. Will the evidence we/he supplied in 2016 to prove the funds were not obtained illegally, suffice as proof this second time round, if it was paid out of the same savings account? The lender should still have those documents on file should they not?
 
What a good situation, moneywise, to find yourself in :)

A few thoughts occur to me (in advance of more knowledgeable folk chiming in):-

  1. Get out your copy of the mortgage agreement and consult a solicitor?
  2. Talk to your mortgage lender?
  3. Consult an IFA (Independent Financial Advisor)
  4. I surmise there are tax implications for you and your relative:-
    S/he is gifting you a large sum of money (AFAIK the size of such gifts are limited and controlled by HMRC rules & regulations?)
    Will HMRC ( the Tax Man) see the gift as unearned income?

    Rinse and/or repeat points #1 to #3 above.
Best of luck finding a way through the 'problem' :)

PS nothing on a public forum will ever represent legally binding advice....................even from those in the industry you seek ;)

PPS when I had a mortgage I shortened by always paying at the higher % rate when the rate dropped. I think I recall making the last payment as small lump sum?
 
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It is a fortunate position do be in, however, This is not the place to ask for this type of advice.
There are many things to be taken into account such as potential early repayment penalties, money laundering rules, potential inheritance tax issues, proving it's a gift and not a loan etc.
If your relative gifts you the money and dies within 7 years and his estate is liable for inheritance tax, the money they have gifted to you can form part of the overall tax liability, and you may have to repay all or part of it to help meet the liability.
You both should seek professional advice.

I hope you can get things sorted.
Perhaps you could do all the legwork and soften any potential inconvenience for your relative.
 
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We were lucky enough to do just that. Not as soon as you into the term.6 years in. When I repaid the lender asked me where id got the money. I explained that it was an inheritance. Just the one question to cover it. I guess they checked but don’t know. As I guess you know any transaction of more than £10000 is checked because of money laundering laws.

Just phone your lender and ask them how to repay. It’s very easy
 
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1. Call the mortgage firm and ask for an early redemption figure - it will be payable as at a certain date.
2. Ask for their payment details.
3. Pay them the money.

It really is that simple (and yes, I've done it). They may be required to ask money laundering questions (it's a vaguely grey area and some banks aren't very smart). If so, answer honestly. Lenders tend to be more interested in where you get the deposit from than where you get the redemption money from.

Do bear in mind that if your relative were unfortunately to die within 7 years then there may be inheritance tax to pay.

wave01 said:
You need professional advice to be honest
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Not really - somebody gives you money, you use it to pay off a debt. I honestly don't know what kind of professional could help with that. If anything that would be the thing to trigger "alarm bells".
 
boyfalldown said:
As I guess you know any transaction of more than £10000 is checked because of money laundering laws.
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Is that just on mortgage payments? I paid off more than double and just under double that amount when buying cars. An over the phone payment and a bank transfer no checks were carried out.
 
I can confirm that @JonathanRyan is quite right. He's also right that you might be liable for inheritance tax on the death of your benefactor. To deal with the latter you should ask an insurance broker for a quote for life assurance on your relative. This is entirely legal and actually a common practice in such cases. As the lender has already conducted due diligence on the original deposit there should be no need to repeat that. The worst that should happen is that your relative may be asked to sign a form confirming that his circumstances haven't changed.

While the money laundering legislation may annoy some honest citizens it provides a powerful tool for curbing corrupt behaviour. I think our society is better off with it than we were before.
 
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Check the early redemption information on the mortgage. A few charge extra fees when you pay some or all of it off early.
 
If the money came through legal means then don’t worry any questions that arises, you have nothing to worry about even if they ask. I presume you are getting this via a bank transfer, not a suitcases full of cash. p.s also look at taper relief...hope they live for 7 years from the date of the gift. You should see a solicitor about this.

Most mortgages will have a penalty clause to pay off early. But many (or mine does) allow overpayment to bring down the years. Check your mortgage to find out. Book an appointment with the bank and ask in person. I did this last month, we could repay up to £10k per year as overpayment without penalty. Or when the fixed rate finishes in 3 years, a complete lump sum of the entire balance if I want. Until then I can only overpay by £10k per year unless i want to pay for the penalty fee.
 
If there is a fee to pay off early you need to calculate that against the amount in interest you'll save anyway by not owing the full amount.
 
nilagin said:
Is that just on mortgage payments? I paid off more than double and just under double that amount when buying cars. An over the phone payment and a bank transfer no checks were carried out.
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That’s on all payments. Just cause you saw no checks doesn’t mean none were done :)
 
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boyfalldown said:
That’s on all payments. Just cause you saw no checks doesn’t mean none were done :)
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They must have been very quick checks, the money was deducted from my account straight away. Other the payments being made from my debit account, they would have had no idea where the money came from prior to that.
 
Not sure on all of the above, but we paid of our mortgage in lump sums just from our internet banking, we just sent chunks of money to its account and sort code and it just flew though without a single hitch, our business was doing very well so we took large dividends.

we paid off approx. £68k over about 18 months in chunks of about £10k, we never even got a call or a letter from Yorkshire Bank, just a final letter stating the mortgage was clear and thanks for the business.
 
AndrewFlannigan said:
I can confirm that @JonathanRyan is quite right. He's also right that you might be liable for inheritance tax on the death of your benefactor. To deal with the latter you should ask an insurance broker for a quote for life assurance on your relative. This is entirely legal and actually a common practice in such cases.
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Oh I hadn't thought of that. But yes, if their death could present you with a bill then I guess you have an insurable interest. Whether it's worth it or not is a judgement call.
 
JonathanRyan said:
Not really - somebody gives you money, you use it to pay off a debt. I honestly don't know what kind of professional could help with that.
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A financial adviser will advise on potential inheritance tax liabilities etc.
A solicitor will ensure the money is a gift and not a loan.
It makes everything watertight and ensures there are no future issues.
This would protect the OP. Not an issue for the relative.

I know it's not likely, but it won't be the first time someone has given someone money to pay off a debt, then there's a family fall out and all of a sudden it wasn't a gift, it was a loan.
These are issues that won't arise if you use your own money/inheritance etc to pay off your mortgage.

Most folks would likely go ahead without advice, and there would be no issues, but depends on whether you want to take the chance.

Early redemption penalties normally only apply if your in a fixed rate/discounted rate mortgage and you wish to repay the mortgage during the period of the fixed/discounted rate.

The jumping through hoops etc regarding the source of a deposit is more of a concern for the banks as they are lending the money, and money laundering rules are extremely strict, as are lending rules since the financial crisis.
Neither is likely to be an issue when repaying, and the relative can transfer the money and the mortgage can be repaid fairly easily as has been said above
 
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boyfalldown said:
We were lucky enough to do just that. Not as soon as you into the term.6 years in. When I repaid the lender asked me where id got the money. I explained that it was an inheritance. Just the one question to cover it. I guess they checked but don’t know. As I guess you know any transaction of more than £10000 is checked because of money laundering laws.

Just phone your lender and ask them how to repay. It’s very easy
Click to expand...

When the lender asked you, did they ask you to provide any additional paperwork for proof/evidence? We provided proof/evidence when we secured the mortgage in 2016 with the gifted deposit from the same relative, in the form of 6 months worth of bank statements. Bank statements showed adequate funds in savings over the duration of all 6 months+ Can this be used again a second time? E.g. circumstances have not changed, funds still consistent and available, 2-3 years on from 2016.

JonathanRyan said:
1. Call the mortgage firm and ask for an early redemption figure - it will be payable as at a certain date.
2. Ask for their payment details.
3. Pay them the money.

It really is that simple (and yes, I've done it). They may be required to ask money laundering questions (it's a vaguely grey area and some banks aren't very smart). If so, answer honestly. Lenders tend to be more interested in where you get the deposit from than where you get the redemption money from.

Do bear in mind that if your relative were unfortunately to die within 7 years then there may be inheritance tax to pay.



Not really - somebody gives you money, you use it to pay off a debt. I honestly don't know what kind of professional could help with that. If anything that would be the thing to trigger "alarm bells".
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I called the lender today, and was given a final payment figure which included outstanding figure, overpayment fee, and a processing fee? I was also given account details in which to make the payment in to. When I asked will there be any further paperwork I would need to supply, or would there be any documents to sign etc, I was told no, as it will be a finalisation of the mortgage contract. The account will be closed and a confirmation letter would be sent out, with details on obtaining deed from the land registry. Does this sound about right?

Raymond Lin said:
If the money came through legal means then don’t worry any questions that arises, you have nothing to worry about even if they ask. I presume you are getting this via a bank transfer, not a suitcases full of cash. p.s also look at taper relief...hope they live for 7 years from the date of the gift. You should see a solicitor about this.

Most mortgages will have a penalty clause to pay off early. But many (or mine does) allow overpayment to bring down the years. Check your mortgage to find out. Book an appointment with the bank and ask in person. I did this last month, we could repay up to £10k per year as overpayment without penalty. Or when the fixed rate finishes in 3 years, a complete lump sum of the entire balance if I want. Until then I can only overpay by £10k per year unless i want to pay for the penalty fee.
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What is taper relief? I think on our contract it said we can make 10% of total price, per year, without overpayment fees being applied. We had come to the end of our 2 year fixed in December 2018. We are now currently on a 5 year fixed.

Mr Bump said:
Not sure on all of the above, but we paid of our mortgage in lump sums just from our internet banking, we just sent chunks of money to its account and sort code and it just flew though without a single hitch, our business was doing very well so we took large dividends.

we paid off approx. £68k over about 18 months in chunks of about £10k, we never even got a call or a letter from Yorkshire Bank, just a final letter stating the mortgage was clear and thanks for the business.
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Just curious, do you also hold a current account etc with Yorkshire Bank also? Or did you only have a mortgage with them? I am with HSBC and mortgage is with Nationwide.
 
Taper relief relates to inheritance tax. The idea is that you can receive a once life time gift (forgot the cap) tax free provided that the donator lives for 7 years. If said person dies in year one you pay full tax, less if they die in year 2, even less in year 3, less in year 4 until 7 years and it’s free.

It’s a legal mechanism to get money without the tax man getting his hands on it.
 
If the relative dies within 7 years of giving you the money, the amount that they gave you is taken into account on a reducing scale when calculating the final inheritance tax liability, if there is a liability. There may not be.
If there's sufficient funds in the estate to cover the full liability then it's unlikely you will be hit with an amount to pay back in the future.
However, if the beneficiaries of the estate know you have received the money, they could take action to recover part of the liability from you as it increases their inheritance and reduces their inheritance if they don't.

I suppose a lot hinges on how wealthy the relative is, and how likely he is to live for 7 years or not.

You could just pay off the mortgage and not worry about it.
If he died and you found yourself with an amount to pay in the future, you could potentially remortgage for the amount due and still be a lot better off than you are now.
It's only a real issue if you were hit with a bill and had no means to pay it.

I've never been in that position myself, but was a financial adviser with a major bank for nearly 20 years.
 
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Bobsyeruncle said:
A financial adviser will advise on potential inheritance tax liabilities etc.
A solicitor will ensure the money is a gift and not a loan.
It makes everything watertight and ensures there are no future issues.
This would protect the OP. Not an issue for the relative.

I know it's not likely, but it won't be the first time someone has given someone money to pay off a debt, then there's a family fall out and all of a sudden it wasn't a gift, it was a loan.
These are issues that won't arise if you use your own money/inheritance etc to pay off your mortgage.

Most folks would likely go ahead without advice, and there would be no issues, but depends on whether you want to take the chance.

Early redemption penalties normally only apply if your in a fixed rate/discounted rate mortgage and you wish to repay the mortgage during the period of the fixed/discounted rate.

The jumping through hoops etc regarding the source of a deposit is more of a concern for the banks as they are lending the money, and money laundering rules are extremely strict, as are lending rules since the financial crisis.
Neither is likely to be an issue when repaying, and the relative can transfer the money and the mortgage can be repaid fairly easily as has been said above
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Will the financial advisor tell me the same run down as the information on the gov.uk website? Or is there more to it than that?

Is the solicitor to ensure the money is a gift and not a loan, for my benefit, in case things turn sour between family member etc? Or is it for the lender? I remember when we were gifted our deposit, my relative had to sign a declaration to state it was a gift and not a loan. Sorry for sounding silly. Can I not pay off a loan, with a loan?
Raymond Lin said:
Taper relief relates to inheritance tax. The idea is that you can receive a once life time gift (forgot the cap) tax free provided that the donator lives for 7 years. If said person dies in year one you pay full tax, less if they die in year 2, even less in year 3, less in year 4 until 7 years and it’s free.

It’s a legal mechanism to get money without the tax man getting his hands on it.
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Thanks for the explanation, I just had a quick look on the gov.uk website and it states the threshold being £325,000. The tax percentage decreasing until 7 years+, where it will be 0%?
 
R.Y.K. LEE said:
Will the financial advisor tell me the same run down as the information on the gov.uk website? Or is there more to it than that?

Is the solicitor to ensure the money is a gift and not a loan, for my benefit, in case things turn sour between family member etc? Or is it for the lender? I remember when we were gifted our deposit, my relative had to sign a declaration to state it was a gift and not a loan. Sorry for sounding silly. Can I not pay off a loan, with a loan?Thanks for the explanation, I just had a quick look on the gov.uk website and it states the threshold being £325,000. The tax percentage decreasing until 7 years+, where it will be 0%?
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IMO a gift by definition means the gift giver has no rights of return of said gift :)
But a loan by implication is intended to be paid back................i.e. you will still have debt that needs servicing = complicated, as I see it compared to the mortgage itself

PS I have just re-read your OP and see that you did not define the lump sum and I read that as a gift..................if it is indeed a loan IMO that puts a whole different complexion on the matter :( So just what is the relative offering a gift or a loan???

PPS worst case scenario ~ it is a loan and as such is some form of asset of the estate of the relative...............s/he dies and her/his inheritors then pursue you for immediate repayment of the loan with interest??? NB I have no idea if this situation could exist but then that is what solictor's are for to make sure all the T's are crossed & the I's dotted. Makes a mortgage sound much more attractive ;) Edit ~ I was editing whilst Ray replied, so now not relevant!
 
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R.Y.K. LEE said:
Will the financial advisor tell me the same run down as the information on the gov.uk website? Or is there more to it than that?

Is the solicitor to ensure the money is a gift and not a loan, for my benefit, in case things turn sour between family member etc? Or is it for the lender? I remember when we were gifted our deposit, my relative had to sign a declaration to state it was a gift and not a loan. Sorry for sounding silly. Can I not pay off a loan, with a loan?
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It's all for your benefit if things go sour.
You dont actually have to take advice if you dont want to.
All the financial adviser will do is discuss potential inheritance tax liabilities and how to negate this/cover the potential liability.
The way they would usually do this is for a decreasing term insurance policy over 7 years, on the relative, written in trust with you as the beneficiary.
If the relative dies, the policy pays out to you and you use the payout to settle your share of the liability.
The problem with this could be the cost of the life insurance premiums, particularly if it's for a high sum insured and the relative is elderly.
You could possibly pay any future liability by remortgaging instead, if required.
If the relative doesn't die, you could have paid a small fortune in insurance premiums for nothing.

A solicitor will ensure a gift is a gift and can't ever be misconstrued as a loan.

Does the relative have family of his own?
 
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Box Brownie said:
IMO a gift by definition means the gift giver has no rights of return of said gift :)
But a loan by implication is intended to be paid back................i.e. you will still have debt that needs servicing = complicated, as I see it compared to the mortgage itself

PS I have just re-read your OP and see that you did not define the lump sum and I read that as a gift..................if it is indeed a loan IMO that puts a whole different complexion on the matter :( So just what is the relative offering a gift or a loan???
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Apologies, it's a gift. The same as when they gifted us the funds to put down a deposit and secure the mortgage.

When I said, "can you not pay off a loan with a loan?". I meant in general. I was confused as to why they had to sign the declaration to the lender and solicitor to declare it as a gift and not a loan. Hence why I thought it was a silly question to ask [emoji16]
 
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R.Y.K. LEE said:
I called the lender today, and was given a final payment figure which included outstanding figure, overpayment fee, and a processing fee? I was also given account details in which to make the payment in to. When I asked will there be any further paperwork I would need to supply, or would there be any documents to sign etc, I was told no, as it will be a finalisation of the mortgage contract. The account will be closed and a confirmation letter would be sent out, with details on obtaining deed from the land registry. Does this sound about right?
Click to expand...

Yes. There should also be a date for the redemption figure. You need to pay the amount agreed by that date or the figure will change (since interest is charged daily). They may also give you a per diem figure. Pay £xK by 4th August + £y per day after then. You can then compare the per diem with the cost of your bank making a large instant transfer :) In my case it was cheaper to pay a couple of days' interest than pay for a CHAPS payment.

Bobsyeruncle said:
A financial adviser will advise on potential inheritance tax liabilities etc.
A solicitor will ensure the money is a gift and not a loan.
Click to expand...

Maybe so. But most financial advisers I've dealt with are better at selling investments than giving tax advice. I've recommended these people in the past but don't really think there's any need for them in this case.

https://www.taxcafe.co.uk/
 
Just another little thought, if there is a massive % penalty for early payment, maybe you could sit the money in an account of your own somewhere, set up a standing order from that to pay the mortgage monthly until the massive % penalty has disappeared. Say at the end of a 3/5 year tracker/fixed rate whatever. The interest you pay during this period may turn out to be less than if you paid off straight away and paid the massive % penalty for early settlement. As I say just a thought.
 
DorsetDude said:
Just another little thought, if there is a massive % penalty for early payment, maybe you could sit the money in an account of your own somewhere, set up a standing order from that to pay the mortgage monthly until the massive % penalty has disappeared. Say at the end of a 3/5 year tracker/fixed rate whatever. The interest you pay during this period may turn out to be less than if you paid off straight away and paid the massive % penalty for early settlement. As I say just a thought.
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And that's exactly why the good lord invented Excel :)

Don't forget to allow for tax on the interest if it exceeds the tax free interest amount.....
 
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