To have been this stupid about my mortgage? Huge financial loss

[highlandtime]

Hello

I bought a house and took out a mortgage in 2006 when I was very young, and didn't really understand much about mortgages. The bank offered me a rate of 4.8% which was fairly typical at that time, and 3 years later when my deal expired I called the bank and asked what my options were. They said that when my deal ended I would automatically go onto the standard variable rate, which was only marginally higher than the rate I was on, and represented an increase of £7.65 to my monthly repayments. I understood that was a good deal, and was not told about any other options that might be available to me. I decided to let my deal expire and then go onto the SVR.

I had no idea that I could have chosen from the other deals they had on offer, I don't know why other than I was young and green and naive. During my phone call, the bank the didn't mention this either. I came away with the understanding the SVR was my best option and I was lucky it was only a small increase. I also thought that I now was stuck on the SVR unless I wanted to remortgage with another bank.

Today I was prompted to phone the bank following a chat I was having about mortgages with a friend. I asked for a 'rate change' and opted for a deal which brings my rate down from nearly 5% to just over 1% !!!!! My monthly repayment has changed from £1200 to £200. Great! But I cannot reconcile how I have been paying an interest rate of nearly 5% for the past 8 years.

I will call the bank and ask for the 2009 phone call to be reviewed (I took quite extensive notes and have kept them). I will also tell them I think I was misled. Does anyone have any advice or been through a similar experience and was anyone successful in recouping anything?

Thank you

Tosh
The op owns her house. Her name is on the land registry. The mortgage company has registered a charge against it. The equity value is the value of the house less the amount owed to the mortgage company.
By your definition, no-one with a mortgage has any equity until they have repaid the last penny.

The number of people commenting on this thread with not a clue of what they are talking about astounds me.

If it’s any consolation Op I had a mortgage from 1990 and it was a lady at work that mentioned to me about being able to get better interest rates and fixed deals - this was in 1996/7

TBH in 1990 the interest rate was 15% so having the payments come down every month for the first 24 month was so wonderful I hadn’t realised I could save more

I went from an 8% deal to a 4% deal fixed for 5 years and was chuffed to bits with the saving

But without internet and although i wasn’t stupid I wasn’t aware of different deals - until this woman had pointed it all out.

If you could afford the £1200 per month repayments, why have you continued to opt for interest only repayments at £200?!?! You need to start paying off your actual mortgage!

Unless this has been explained somewhere else in the thread but I don't understand this at all.

you only own the equity if you own the house. The Op does not own the house therefore any equity in it is not hers

Never heard such nonsense in my life. The equity is, as a pp has explained to you, the difference between the value and the loan. That is the legal meaning of equity. You must repay the loan at the end of the term but the bank in no way owns your house. They have a charge by way of legal mortgage. They can only repossess as a remedy to recover their loan if you default. 100 years or more ago you used to have to transfer ownership to the bank when you mortgaged your home. That has not been the case for a veeeerrryyyy long time.

There's some anecdotes here about peoples' mortgages which make for interesting reading. But I am very concerned about the assertions people are making about overpayments; please, please look at your mortgage lender's terms and conditions before making any decisions!

Our repayment mortgage clearly states (if you care to read it) that it will only accept a lump sum overpayment ONCE a year if you want to reduce the capital. And you need to tell them about your wishes or they will indeed only adjust your monthly payments or the mortgage term.
I quite often read that small overpayments have reduced people's mortgages on mumsnet... but you need to be savvy.
(I can only assume that banks don't want to faff about with small adjustments monthly or ad hoc payments).

There is a difference between regular overpayments and lump sum overpayments though. You do need to be aware of the Early Repayment Charge period on your mortgage and any ERC concessions, eg your lender may allow you to make an overpayment of up to 10% of the amount owed each year.

There's such a lot of nonsense on this thread
Of course you own the equity on your house with an IO mortgage!
And there are very often absolutely no early redemption fees or charges when you make overpayments or lump sum payments with IO mortgages.

We've been interest only since 2003. We had a lifetime mort of 0.45% above base rate since 2006. So for many years out interest rate has been below 1%. We took on a big mortgage and make over payments whenever it's convenient for us. Some years nothing, others, huge amounts. So yes for some people IO mortgages can be a brilliant thing!

I haven't read the whole thread but understand how sickened you must feel!

I would recommend you take professional, independent advice on this.

ERCs can apply on IO mortgages - it depends on your lender and mortgage deal as they tend to apply if there is a deal period on the mortgage, eg fixed for 2 years. Hence needing to read and understand your offer / statements.

Our repayment mortgage clearly states (if you care to read it) that it will only accept a lump sum overpayment ONCE a year if you want to reduce the capital. And you need to tell them about your wishes or they will indeed only adjust your monthly payments or the mortgage term.

Regardless of whether they shorten the term of the mortgage or reduce the monthly payment, you are still reducing the capital.

Usually the default position is to reduce the monthly payment simply because people sign an offer for £X amount over Y years. So if you pay some off, the term would remain the same, you'd just have a smaller mortgage and smaller repayments. But you'd still pay less interest overall, because less capital to charge interest on = less interest over the term of the mortgage.

So how is the Op meant to repay the capital? If she has no other means of savings she will have to sell the house. She won’t see a penny of that equity until the house is sold. Therefore it isn’t hers yet.

Really. We all know what equity means. I’m surprised you think it’s hers whilst she still actually owes the Bank the original capital.

"She won’t see a penny of that equity until the house is sold. Therefore it isn’t hers yet."

I am on a repayment mortgage, but wont see a penny of my equity unless I sell the house or remortgage it to release the equity. The equity is still mine, but with a big loan secured against it. The equity still belongs to the op - she just has less of it than if she had a repayment mortgage.

The opposite is also true- if house prices had gone down instead of up, op would need to pay the bank back the full, original amount if she sold up. Home owners gain from positive equity and are liable for the negative equity whatever mortgage they are on.

Some of us know what equity means. Clearly not all from the rubbish being spouted!!

Ms you clearly don't understand what "equity" means.

No one will get to see the equity until they have sold their property, even if you won a property 100%, you won't "see" the equity until you have sold it, but you still own that equity.

If I have a house worth 500,000 with a mortgage of 200,000. I own the 300,000 equity. The bank doesn't own it, I do.

Obviously I may only sell the property for 470,000, but I still own everything over the 200,000 mortgage. That is the same, whatever kind of mortgage I have.

I do understand the meaning of equity, in the nicest possible way, really I do. I’m just amazed that the rest of you seem to think it’s a given. House prices can fall, and at the moment supply in London is outstripping demand. The Op still hasn’t explained how she’s going to pay back the capital.

I don’t know why I care, really. I guess the idea of owing thousands and thousands of pounds to someone and the only way of paying it back would be to sell my home seems a bit scary to me. But then I’ve never had to take out a mortgage, we’ve always been lucky enough to have our own funds.

I've just gone onto SVR from a 10 year fixed rate.
Pretty gutted during those 10 years when rates dropped, and then dropped again...and again, and I was stuck paying a much higher rate.
For me though, at the time, knowing exactly what I had to pay each month was what I wanted and needed that security as I couldn't afford any big repayment rise.
I just accepted that for that reassurance, I had to pay extra.

IfYou - that's your rate that qualifies you for unlimited overpayments not the fact you're IO.

I will now be making overpayments with my lowered monthly repayment, to repay capital. I could not afford to before!
The OP explains in her second post how she intends to repay the capital.

No-one gets an IO mortgage with the intention of selling the house when the the term is up. Years ago an endowment policy would be sold alongside them. (Some of them were midsold)
Or you assume that your salary will increase significantly over the term, or you can make overpayments with bonuses. It's a very cheap way of getting on the property ladder.
IO mortgages are not as widely sold now as the banks do want to know how you intend to pay it off.

My understanding of an interest only mortgage is that you will be paying the interest only - ever. So even if you overpay you will be only ever be reducing the amount of interest due, but you will never reduce the capital?
Maybe someone Who works with mortgages can clarify?
If this is the case the op's plan is flawed, which is why she needs paid for financial advice.

@fucksakefay Yes, but the value of the house can be reasonably accurately measured now, so the equity can be said to be value minus mortgage.

If you were bookkeeping a small business, you could record the value of any premises at any given time as a non-current asset, regardless of whether you intended to sell the property. It doesn't lose all value in between sales for these purposes.

@Runningpear - any overpayment made on an IO mortgage reduces the capital. So if she overpays by £1000 a month then she will be reducing her balance by this amount.