As a homeowner, you may struggle with paying your mortgage or being able to afford necessary repairs or improvements. The government offers help in the form of a loan called Support for Mortgage Interest (SMI).
What is Support for Mortgage Interest (SMI)?
This loan can help towards the interest payments you make for your mortgage or loans you’ve taken out to cover the costs of essential repairs and improvements. To qualify for this loan, you usually need to be receiving certain benefits, which we’ll detail below. As a loan, SMI has to be repaid with interest when you sell your home or transfer ownership of it.
You can use SMI towards the interest payments for:
- Your mortgage
- A loan taken out to buy a larger share of your property. For example, to buy an ex-partner out of their share or to increase your share if you bought your home using a shared ownership scheme.
- A loan to cover essential repairs or improvements. This includes adapting your home to cater for a disability or illness.
- An alternative financial arrangement, such as an Islamic mortgage. You need to receive Universal Credit or Pension Credit to qualify for this.
You cannot use SMI to pay for:
- Your mortgage loan (you can only use it for the interest payments)
- Any mortgage arrears
- Insurance policies
Support for Mortgage Interest eligibility
To be eligible for SMI, you usually need to receive one of these qualifying benefits:
- Income Support
- Universal Credit
- Pension Credit
- Income-based Jobseeker’s Allowance (JSA)
- Income-related Employment and Support Allowance (ESA)
If you receive Universal Credit, you won’t be eligible for SMI if you receive an income from earnings (whether you’re employed or self-employed), a tax refund, Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay or Statutory Shared Parental Pay. In this case, the income has to stop and you then need to receive Universal Credit for nine consecutive months.
You may have applied for one of the qualifying benefits but your application was denied because your income is too high. Despite this, you may still be able to receive SMI. In this case, you’ll be treated as receiving the benefit you applied for.
How does Support for Mortgage Interest work?
As long as you meet the Support for Mortgage Interest criteria, the interest is usually paid on up to £200,000 of your mortgage or loan. This is reduced to £100,000 if you receive Pension Credit or you began claiming a different qualifying benefit before January 2009, at which point you were below State Pension age. If you already receive SMI, you can still get help with interest payments on up to £200,000 if you switch to Pension Credit within 12 weeks of stopping other benefits.
The amount of SMI you’ll get is calculated using a standard interest rate, which is currently 2.09%. For example, if the outstanding mortgage loan for your home in Bexleyheath, Kent, is £100,000, the maximum you’ll be entitled to receive per year is £2,090. This figure may be lower if you receive some form of income or have an adult living in your home (other than your partner) who could pay you some rent, such as a grown-up child.
Rather than the SMI loan being paid to you, it’s usually paid to your lender. Payments can be made straight away if you receive Pension Credit, after receiving Universal Credit for nine consecutive months (as long as you’re not receiving a particular income at the same time) or after claiming one of the other qualifying benefits for 39 consecutive weeks.
How to apply for Support for Mortgage Interest
To apply for this loan, simply contact the office that pays your qualifying benefit. If you’re entitled to it, the payments will be backdated to when you first became eligible for SMI.
If you’re applying for one of the qualifying benefits mentioned above, your eligibility for SMI will be assessed at the same time. You may receive a Support for Mortgage Interest application form, asking you to provide further information. If you meet the criteria, you’ll be offered SMI. You don’t have to accept it at that point but can do so at a later date provided that you’re still eligible at that time. The payments will then be backdated to when you first became eligible.
The interest payable on your Support for Mortgage Interest loan
As mentioned earlier, you’re charged interest on your loan. The rate varies and is currently 3.03%. It won’t change more than twice in a year and you’ll be advised if the interest rate is going to change. The interest is compounded so the longer you receive SMI, the more interest will be payable.
Although interest is charged on this loan, it can still be cheaper than other forms of borrowing. For example, a loan from your bank may have a much higher interest rate. Receiving SMI also doesn’t affect your benefits, which a loan from somewhere else might. Your credit score isn’t affected either as there’s no need for a credit check to be carried out.
Repaying your Support for Mortgage Interest loan
You don’t have to make monthly SMI repayments. Instead, the loan and interest are usually repaid when you either sell your home or transfer ownership of it. Alternatively, it may be possible to transfer the loan to a new home that you’re buying.
When selling your home, the loan is repaid from the sale proceeds after your mortgage, home improvement loans or other loans that are secured against your property have been repaid. If there’s not enough to cover the full SMI loan, the part that cannot be repaid will be written off.
You can repay the loan earlier if you prefer. You need to make minimum voluntary repayments of £100 if this is the case. If the outstanding amount is less than £100, the entire balance must be paid.
If you pass away and your partner inherits your home, they don’t need to repay the SMI loan unless the property is sold. Instead, the loan and interest can be repaid when they die. If you pass away and your home is inherited by someone else, they will need to repay the loan and interest.
Is SMI right for you?
Before deciding whether or not to apply for SMI, get expert advice from one of our mortgage brokers. There may be more beneficial routes for you to take. If you’re struggling with your mortgage, for example, you may be able to extend your mortgage term or perhaps apply for a mortgage payment holiday. Just give us a call on 01322 907 000 to discuss your circumstances. We’ll look at the other options available and ascertain which one is the best solution for you.