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

I'm only halfway through reading the thread, so apologies if this has already been said.
Many years ago, I worked for a building society. When customers made an overpayment to their mortgage at the branch, they had to state how they wanted it allocated. If they chose to allocate it to the capital, their mortgage payments would be recalculated over the remaining term of the mortgage, usually reducing the monthly payments. At that time, there was no maximum capital repayment sum as long as the repayment term was not reduced. There were also no early repayment penalties because the loan was not being repaid early. Unallocated overpayments had the effect of reducing the length of the mortgage and did attract early repayment penalties. Of course, things may have changed since then, indeed, probably have done, but I think if I had an interest only mortgage I'd definitely be looking at reducing the capital - especially as there are strong rumours of interest rate increases in the nearish future.

Running your understanding is totally wrong. If you make overpayments, you are paying off the capital.

Ms as others have said, very few people take out IO without having any intention of paying it off. You have 25 years to do it for a start.

With most mortgages you can always make payments towards the capital. There will be rules and penalties

I'll repeat my earlier point - the number of people commenting on this thread with not a clue of what they are talking about astounds me. why comment on a thread about mortgages if you have either never had one or clearly know nothing about how they work!

Now I think I'll go and post my opinion on the X factor thread even though I don't watch it and have no idea how it all works....

"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."

Cool.
The vast majority of us, if we are lucky enough to be able to buy a house at all, will need a mortgage to do so. Yes, owing that much money is a bit scary, but it is far less scary to me than the alternative - being dependant on the goodwill of a landlord, having to move house regularly, and having to pay ever increasing, ridiculously high rents with nothing to show for it long term.
Increased equity CAN be useful to a homeowner even when they are not selling, as it can enable them to renogotiate a cheaper mortgage based on a lower LTV.

There are some people who are caught out by IO mortgages ending when they don't have enough to pay off the amount owed (imo this is a bit of a timebomb, which will shortly get more media attention). However, generally speaking (not always of course) the people whose mortgages are expiring in the next few years bought their houses 20 or 30 years ago, at bargain prices compared to today's prices. They may be forced to sell up, but at least will walk away with large chunk of equity. I feel sorry for these people (having to sell a house they are emotionally attached to and move) but not nearly as sorry as I feel for the younger generation who are trapped paying far, far more in rent than a mortgage would cost, who will not see any equity in return. I would rather be made homeless with tens (or hundreds) of thousands of pounds, than be made homeless with nothing.

There has been some good advice to op on here, and some terrible advice.
ceeveebee is right - why are some people so compelled to comment on things they know nothing about?

Unallocated overpayments had the effect of reducing the length of the mortgage

The only way they could reduce the term of the mortgage is by reducing the capital, therefore reducing the interest charged. Any payment over and above the required monthly repayment will be allocated to pay off the balance.

If you owe £100000 over 25 years and pay £1000 per month, then you pay £10,000 off and your payments reduce to £900 per month, you have reduced the balance and the interest charged. You can now tootle along with a mortgage of £90,000 over 25 years instead. If you choose to continue paying the £1000 that you originally paid, you still only owe £900 per month, therefore that extra £100 reduces the balance. And if you do that for a year you will have paid £11,200 off your mortgage, not the £10,000 in the first scenario. Therefore you now only owe £88,200 instead of the £100,000 you originally borrowed. And you owe less interest. So now instead of having £100 extra to pay each month you might be paying back £120 each month over and above what you actually need to. And so it goes on until you eventually have the thing paid off over 15 years instead of 25. *

*Disclaimer - these figures are totally made up and bear no resemblance to reality and don't take account of interest rate changes, or the fact that most mortgages these days use daily interest calculations instead of annual.