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Original poster

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

306 replies

highlandtime · 05/10/2017 14:11

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

OP posts:
MiniCooperLover · 05/10/2017 20:41

OP, if you’ve stayed in an interest only rate how do you plan to pay off the capital? Also, being on the SVR how did you not see a rate decrease as the interest rate has been 0.5% since 2009. Did you not see a decrease monthly?

tilligan · 05/10/2017 20:48

OP please get financial advice asap! Sounds like you have given no thought to how you will repay the outstanding capital-did you take out endowment policy or will you have to sell the property to repay the loan? You do realise that" interest only" payments make no dent in the amount outstanding?
Also, no way will the bank keep calls from 2009.

ceeveebee · 05/10/2017 21:07

I totally agree with Aridine
As an FCA regulated business they have a responsibility to put customers interests first and provide clear information. The rules are there to protect the financially illiterate!

Every time I have come to the end of a fixed rate deal, I have had a letter explaining the implications and the options. I would absolutely make a complaint.

And of course overpayments on an interest only mortgage will reduce the capital. Why on earth would anyone want to use them to reduce the term, that makes no sense whatsoever.

ceeveebee · 05/10/2017 21:09

The SVR is not the same as bank base rate. Most banks SVR is significantly higher (although usually pegged to base but not necessarily)

InvisibleKittenAttack · 05/10/2017 21:23

I repeat OP - how do you intend to pay off the amount you borrowed at the end of the mortgage?

You've said your property has gone up in value about 4X, and that's great, but if you borrowed £200k, you will still owe £200k at the end of your mortgage. As others have said, if you've not remortgaged, so you have 14 years left. At the end of the 14 years, you have to hand the bank £200k. Will you have the money to give them the amount you borrowed? at that point, will you be forced to sell to raise the money?

On interest only, you are only not making the debt bigger by paying the interest, you still owe the sum you borrowed and need a plan to pay it back. You might only have 14 years to do it.

Don't ignore this.

ceeveebee · 05/10/2017 21:29

Hasn't OP already said she'll be overpaying (i.e. Repaying) 10% a year - which will pretty much clear it in 14 years?

sparechange · 05/10/2017 21:36

ceevee
That’s only the interest
OP will still owe the capital (ie the cost of the house) at the end of it

Autumnchill · 05/10/2017 21:38

But based on her own admission about understanding finances, that repayment might happen for 2 months, then it’s Christmas and just this month I’ll not over pay, then it’s January, cards to pay, oh I’ll not pay this month but I’ll definitely start overpaying next month.....

Much safer to be on a repayment with a fixed payment and then overpay that if you can.

ceeveebee · 05/10/2017 21:48

Spare change - no she won't. Overpaying an interest only mortgage reduces the capital.

ContraryFairy · 05/10/2017 22:06

We signed a 10 year fixed in 2007. I DID NOT want to but was convinced it was the best as rates were going up. This was at 5+ %. We wasted £££££s but that was then, this is now. We could've lost our home had we not been tied in.

treaclesoda · 05/10/2017 22:09

Now maybe I'm being really dense, it has been known, but sure with an INTEREST ONLY mortgage, you NEVER touch the capital? So, for example, you borrow £200k and your payment is whatever amount, say £500 for simplicity over 20 or 25 years. If you over pay and send them £750 a month, you have the choice of either reducing your monthly payments, or reducing the term. So either your payment goes down to £480 a month, or you pay for 19 years 10 months instead.

But the only way your repayments would reduce on an interest only mortgage would be if a sum is paid off the capital, therefore reducing the interest owed.

PoppyPopcorn · 05/10/2017 22:11

We've never had an interest only mortgage, always repayment. I know very little about interest only mortgages as the whole idea seems so counter intuitive.

treaclesoda · 05/10/2017 22:12

And with an interest only mortgage the amount of the monthly payment is the same regardless of the term of the mortgage, unlike a repayment mortgage where a longer term = smaller repayment.

The only reason people used to take 30 year interest only mortgages instead of 10 a years, was because that gave them 30 years to find the money to pay it back, not because 30 years meant lower repayments.

DuckbilledSplatterPuff · 05/10/2017 22:36

Of course I didn't mean stop paying her mortgage. Honestly! I meant don't give them anymore of your business - why go back to them for another duff deal and give them more of her money!! The last thing she should do is default on her loan. People do love to misinterpret!

TheNoodlesIncident · 05/10/2017 22:37

Op, please please PLEASE make an appointment with an independent financial adviser just as soon as you can. They have a wide range of products available and have the knowledge to sort out a far better deal for you.

My first mortgage was an endowment one, the first thing DH did when we got married was to change it for a repayment one. I've still got the savings vehicle associated with it, with recessions and so forth it's not making the amount that was intended to back when I took it out. I have kept it though, because a) it offers a life assurance element, so if I get splatted by a bus the entire sum will be paid to my estate, and b) the property mortgaged was paid off (by DH and his repayment mortgage) long ago and we are now on another house and another mortgage.

Interest-only is NOT the way to go. You can get a much better deal for yourself than that.

TheweewitchRoz · 05/10/2017 23:09

Op, you need to accept responsibility for your own financial situation. Unless you were deliberately misled, the bank has done nothing wrong.

Shamoo · 05/10/2017 23:46

You can usually pay off part of the capital of an interest only mortgage every month (to the relevant cap, often 10% of the initial loan). I have one (BTL) and do this and it isn't an issue.

user1471439240 · 06/10/2017 00:03

Interest only is renting from the bank whilst paying for the maintenance and upkeep of said property. It relies on ever increasing house prices to ensure the debt is paid when the bank calls in the loan on maturity.
For example, a 200k mortgage over 25 yrs at 2% would cost £330 per month interest only but would cost £850 as a repayment, ie to actually own the house.
Interest only was a vehicle to allow rampant house price rises, which, as ever, favour the money lenders.

SquareWord · 06/10/2017 09:57

OP - if I've understood correctly you are going to be overpaying by £1000 a month on your new deal. However you also said that overpayments are restricted to 10% which you would be exceeding and therefore penalised.

You also mention that the overpayments are going to reduce your monthly payments. You don't want this. You need to specify that you want your payments to stay the same and your overpayments used to reduce your capital. If you want to switch to a repayment mortgage it's very simple. The product you're on wouldn't change you simp!y would be charged a fee to swap it. From experience this is typically anywhere between £12-£100.

ThereIsIron · 06/10/2017 10:10

Some bad press here about IO mortgages. We've had one since 2000. As long as the interest you're making on your repayment vehicle is higher than the interest you're paying on your mortgage, you're on track to pay off at term. Granted it's been difficult in recent times but doable. You do need to pay attention and keep an eye though.

RavingRoo · 06/10/2017 10:15

Op with all kindness you sound like you don’t know the first thing about your finances. In your situation you need to get some financial advice even if it’s from CAB or similar. I find it shocking that someone with a mortgage for so many years is now claiming ignorance because they didn’t know the mortgage would go back to SVR after the initial fixed term - it’s on your paperwork that if you want a fixed rate at the end of the term you need to call to arrange!!

existentialmoment · 06/10/2017 10:16

Of course I didn't mean stop paying her mortgage. Honestly! I meant don't give them anymore of your business - why go back to them for another duff deal and give them more of her money!! The last thing she should do is default on her loan. People do love to misinterpret!

Misintepret? You said you wouldn't give them another penny of your money. If you didn't mean that, you shouldn't have said it. So what you meant was: I would give them lots more of my money.

Original poster
highlandtime · 06/10/2017 13:57

Update from the bank today. They think they can locate the phone call and have lodged an official complaint. They also confirm a lower rate (4%) was available in 2009.

They wrote to me to explain my fixed deal was coming to an end and that I would go onto the SVR, but the letter did not tell me what my other options were (or if there were other options), and did not contain anything about the implications of staying on an interest only mortgage.

OP posts:
Witsender · 06/10/2017 14:06

I'm sorry, but you genuinely cannot be so simple that you didn't realise what an interest only mortgage was?! The clue is in the name, so I don't think you have a leg to stand on there.

How did you arrange the mortgage?

Loubilou09 · 06/10/2017 14:25

God there are some very smug and sanctimonious people on this thread.

The OP has stated that she will be OVERPAYING her mortgage and therefore will be REPAYING the capital. She will be doing this with the difference between her old rate of £1,200 per month and her new rate of £200 per month so a £1,000 per month payoff of the capital.

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