Support for Mortgage Interest (SMI): Factors to Consider Before Getting A Loan

You would like to buy a house, but you cannot pay the mortgage, or you claim certain benefits? Then you may be able to get help from the government to pay interest on your mortgage via the Support for Mortgage Interest (SMI). Here is some advice on what this is and what you need to know when you apply.

What is Support for Mortgage Interest (SMI)?

Support for Mortgage Interest (SMI) is a loan that you can use to pay the interest on your mortgage or home renovation loan. Usually, you only have to pay back this loan whenever you sell your property or when you transfer it to someone else, for example your children. Of course, you can also pay it back whenever you have enough capital so that you get it out of the way.

Who qualifies for SMI?

Support for Mortgage Interest is a loan from the Department of Work and Pensions (DWP) that can be used to pay interest on a mortgage or other housing loan. You can get SMI if you own a home or are in a shared ownership scheme.

You may also need to fall under one or more of the following categories:

  • Income-based Jobseeker’s Allowance (JSA)
  • Income-related Employment and Support Allowance (ESA)
  • Income Support
  • Universal Credit
  • Pension Credit

DWP charges interest on an SMI loan – this means you pay back more than you borrowed. Even if you pay interest, it can be cheaper than other ways to borrow money. You will have to pay back the loan, but usually only if you sell the house or give it to someone else.

You do not have to pay back any money you receive to pay benefits to cover other housing costs, such as service charges.

How much you will receive

If you apply for SMI, you might be able to get up to £200,000 mortgage. It can be up to £100,000 if you are already getting a loan for retirement. The DWP uses a standard interest rate to calculate how much of a loan you are able to get. This rate can differ from the actual mortgage rate you might receive from somewhere else as the government interest rate can change.

Loan repayment

The current standard interest rate is 2.61%. While this rate may increase or decrease, it does not change more than twice a year, and you will be notified if and when a change is due.

If selling your home is not enough to pay off the SMI loan entirely, the rest of the loan is written off and you don’t have to pay it back.

Mortgage providers can offer several ways to pay off your mortgage, for example, an extension of the mortgage payment date. You may also be able to change your mortgage to get a better interest rate. However, before seeking a mortgage to pay any loan or debt, be sure you understand the common mortgage jargon so that you know exactly what you are getting into.

If you have family members or friends who have a good income, you can ask them to borrow money to pay back the SMI loan. This can be a good option if the person you borrowed money from does not charge interest.

But you should always think carefully before borrowing from family or friends and make sure you can pay back the money borrowed on time so that you don’t damage your relationship with that person.

Get expert advice

Before you decide if an SMI loan is the best option for you and your household, you should seek professional advice, especially if you own a property with someone who is not your partner.

Although buying a house is currently on top of your list, you should always check if it doesn’t bring you into financial trouble. If so, it might be worth waiting a little while longer before applying for SMI.