Firstplus loan - URGENT!!please help

france100

Hi,

Hope someone can help with this as I'm very confused.

My husband and I took out a First Plus secured loan in March 2006 on the advice of our mortgage advisor (a very large national firm of advisors) to extend our home. We borrowed £80,000 over 25 years. Since then, we have paid between £620 and £650 a month without ever missing a payment or having any arrears.

We have now applied to redeem this loan and have been given a settlement figure of £80,500 (£150 of which is an early settlement figure). After paying for this for 2.5 years we cannot understand how we owe more than we borrowed.

Firstplus cannot answer. They say that the £80k we borrowed was really £177,955 over the term and that the rebate for early settlement is £97,636 so we still owe over £80k. We were told when we took out the loan that there was no early repayment penalty. Our mortgage advisors will not return my calls as we are no longer customers. We did manage to talk to one advisor this evening who explained that like mortgages, customers paying secured loans pay off a lot of interest at the start and this decreases over time. However, I still cannot understand how we owe more than we originally borrowed after 2.5 years. Can anyone shed any light on this?

Many thanks

Jules

CLAPTON

did you take out PPI?

france100

No we didn't

MarkyMarkD

My only understanding of this, given that you haven't paid PPI, is that there was an arrangement fee which was added to the loan, and that the total capital you have repaid thus far matches this fee.

But it would have to have been a significant fee given that you've paid around £17,000 in total payments thus far.

I'm not sure that I can understand why you would have been advised to take a secured loan to fund an extension. As the extension would have increased the value of your property, it shouldn't have increased your LTV percentage and it should have been possible to get a further advance on your main mortgage to do the extension - unless your credit history had taken a murky turn, or your income was insufficient. And in either of those cases, the best advice would have been not to do the extension, rather than to borrow from a secured loan merchant. :rolleyes:

france100

Thanks for your reply. Hindsight is a wonderful thing.

We were told by our lender Northern Rock that although we had masses of equity in our property and an excellent credit history, our salary multiples were insufficient. Our mortgage advisors advised against remortgaging with another lender due to stiff NR exit fees on our fixed rate deal and therefore advised a secured loan. We believed that their advice was sound and therefore proceeded as we needed the space in our house that the extension would provide. They advised that the loan and mortgage could be consolidated when we remortgaged three years later.

A financial advisor friend has been in touch this evening and thinks that the Firstplus figures are probably correct. He explained that we have been paying mainly interest for 2.5 years and very little off the balance. What we have paid has been negated by a two month penalty fee for redeeming the loan and a £150 admin fee. We now feel very naive and extremely upset. However, we are adults and have to accept responsibility for this as we were not forced or coerced into doing this.

We have unfortunately learnt a hard lesson.

Jules

marshallka

Has the rule of 78 been used in the settlement. I have just worked it on this calculator and it works out about £81K settlement.

http://brian-stewart.orpheusweb.co.uk/credit/javascript/equalr78-prr.htm

I don't think they should have used it but with this being an unregulated agreement then perhaps it was allowed. Perhaps someone could confirm.??

MarkyMarkD

I don't understand how in your original post you stated that you were told before buying the mortgage that there was no early repayment charge, but you are now being told there is a 2 month early repayment charge.

One or other is clearly incorrect.

But it seems rather more likely that there is an early repayment charge, given that you owe more than you borrowed.

2 months would also be less than I'd expect from this type of lender - 6 months wouldn't be that surprising.

france100

I have contacted the financial advisors that originally organised our loan today and finally managed to get through to someone. The original financial advisor has left the company. However, they agreed that it is possible that we were incorrectly advised that there was no early repayment charge when in fact there was. Our financial agreement does not show one. They stated that they think that a penalty of 1 month is fairly standard. First Plus say not and that 2 months is standard. First Plus have also told us today that we have paid mainly interest and very little off the loan and that this is also standard. Therefore the little that we have paid off the loan has now been eaten up by the early settlements charges and admin fees.

We've learnt our lesson the hard way. The financial advisors conceeded today that we were may have been badly advised. I'd agree with this. We now think that this advice (to borrow via a secured loan rather than remortgage) was perhaps based on the higher commission that the company received at the time.

Lesson learnt!

MarkyMarkD

I wouldn't just write things off. Your agreement should have showed any early repayment charge. If it didn't, then they can't charge you one.