Error in interest rate applied to mortgage

neilbeez

We have a repayment mortgage and there has been an error in the interest rate applied for 1 month. We were charged 4.89% (and charged £586.56) and should have been charged 3.39% (£530.19) on our mortgage. The lender has noted the error and is happy to refund the difference. But, they have said our balance would increase accordingly.

However, the additional £56.37 paid was due to an error in the interest rate applied. Am I right?

And if so, then the lender should either refund the £56.37 with no increase in balance or take an additional £56.37 off the balance. Again am I right??

Thanks in advance for all your help!

opinions4u

My guess is that the rate applied to your mortgage changed for that month (correctly) but your payment remained the same.

You need to clarify what the rate charged was for that month. If the rate reduced but the payment remained the same you haven't lost out.

In other words, the effect of that monthly payment was to accelerate the debt reduction more than would normally have happened. This means that your debt is now lower and, as a result, you are actually paying less interest each year as well (albeit only a couple of quid based on the figures given).

You might not have the money in your bank account, but your mortgage debt has gone down by the extra amount, so you are not out of pocket.

If they refund you the £56.37 that would have the effect of reversing the benefits of the overpayment made - the debt has gone down by an extra £56.37 so if they give you the money back it is right that it should go back up by that amount.

Assuming my interpretation is correct, I'd leave things exactly as they are. You've not been conned and you owe slightly less than you would have done.

If you really need the money back, then they have stated that they will arrange this, but it will increase the balance of your mortgage, putting the mortgage back in to the position it would have been in had the error never occurred.

neilbeez

Thanks for the rapid response.

As I understand it from the mortgage statement the rate was wrong. We were on a tracker mortgage, 0.39% above BoE base rate (applied to the account the subsequent month).

In Nov 08 the base rate changed from 4.5% to 3.0%. Therefore, the rate applied to the mortgage in Dec 08 should have been at 3.39% not 4.89% as shown on the annual statement for that month.

Does this effect your answer?