Correct calculations for settlement figure?

NikNakpaddywhack

Hi board, hoping for some help/advice please.

We have been forced to put our home up for sale and requested a settlement figure from Black Horse on our secured loan. We borrowed £15000 in May 2008. Payments per month were £338 and something pence.

The calculations on the letter are as follows:

Current Outstanding Balance - £14,517.87

Add: Interest calculated to the estimated period of the loan - £7,716.50 (taking it to £22,234.37)

Less: Any rebate to which you are entitled (this includes a rebate on your Payment Protection Plan insurance premium if applicable) - £7,511.73

The total amount required to settle your agreement is £14,722.64

Is the above correct? If we settle the loan now, shouldn't we only be paying 2 years worth of interest? They don't make the calculations very clear cut, and one minute I think yeah, it could be right, then the next I think, now hold on a minute!!

Would be grateful for anyone in the know to shed on light on the accuracy of this.

Thanks in advance.

mitchaa

NikNakpaddywhack wrote: »

Hi board, hoping for some help/advice please.

We have been forced to put our home up for sale and requested a settlement figure from Black Horse on our secured loan. We borrowed £15000 in May 2008. Payments per month were £338 and something pence.

The calculations on the letter are as follows:

Current Outstanding Balance - £14,517.87

Add: Interest calculated to the estimated period of the loan - £7,716.50 (taking it to £22,234.37)

Less: Any rebate to which you are entitled (this includes a rebate on your Payment Protection Plan insurance premium if applicable) - £7,511.73

The total amount required to settle your agreement is £14,722.64

Is the above correct? If we settle the loan now, shouldn't we only be paying 2 years worth of interest? They don't make the calculations very clear cut, and one minute I think yeah, it could be right, then the next I think, now hold on a minute!!

Would be grateful for anyone in the know to shed on light on the accuracy of this.

Thanks in advance.

You have paid £482 off your loan balance in 2yrs but have paid over £8k?

Surely this is not right?

[Deleted User]

if the interest was front loaded then yes it could well be right.

NikNakpaddywhack

Yes Mitchaa - yet they still add on a little extra to the outstanding amount when arriving at the settlement figure.

Are they allowed to do that Woodbine if that is the case? Are they charging me interest over the term of the loan regardless of settling early?

It's more bad news if that is the case. Having to sell the house, and there will be a shortfall on the secured loan once the mortgage is paid off. Are companies like this sometimes willing to compromise with the settlement figure taking into account what you have already paid and why the sale of the house is not by choice?

mitchaa

NikNakpaddywhack wrote: »

Yes Mitchaa - yet they still add on a little extra to the outstanding amount when arriving at the settlement figure.

Are they allowed to do that Woodbine if that is the case? Are they charging me interest over the term of the loan regardless of settling early?

It's more bad news if that is the case. Having to sell the house, and there will be a shortfall on the secured loan once the mortgage is paid off. Are companies like this sometimes willing to compromise with the settlement figure taking into account what you have already paid and why the sale of the house is not by choice?

I can't see this is allowed.

How can you ever owe more than you have borrowed? If you had tried to settle this a couple of months into the agreement, instead of owing £15k, you would have had to have paid back £22k. Had you been on a traditional normal bank loan, you would have owed £14,xxx,xx. Quite a significant difference.

If you are settling early, they have to give you a figure that takes this into account. I.e 2-3yrs worth of interest owed back to you.

I would seek legal advice. If there is no way around it, do not refinance the loan and let them 'win', you are now effectively paying 0% as you have paid all the interest portion. The £338pm payments now will take £338pm off the balance. Continue to do this until the loan is up if its not worthwhile settling just now.

NikNakpaddywhack

mitchaa wrote: »

I can't see this is allowed.

How can you ever owe more than you have borrowed? If you had tried to settle this a couple of months into the agreement, instead of owing £15k, you would have had to have paid back £22k. Had you been on a traditional normal bank loan, you would have owed £14,xxx,xx. Quite a significant difference.

If you are settling early, they have to give you a figure that takes this into account. I.e 2-3yrs worth of interest owed back to you.

I would seek legal advice. If there is no way around it, do not refinance the loan and let them 'win', you are now effectively paying 0% as you have paid all the interest portion. The £338pm payments now will take £338pm off the balance. Continue to do this until the loan is up if its not worthwhile settling just now.

Thanks again for replying Mitchaa.

I don't mind paying them their £15000 back obviously, along with the interest/apr from start of loan until date of settlement. It seems wrong to me that they are adding the interest I would have paid over the full term, only to take £200 shy of that amount as a 'rebate'. This means I am still paying roughly £8000 more than what I borrowed for a term of two years if I settled!

I kept my original post as basic as I could, but want to throw something else into the mix if you don't mind. When we took out the loan, they based the loan on a house value of £104,000 (postcode search on their system). We told them there and then it was no where near worth that much, maximum of £70,000 as it stood. It still required a considerable amount of improvement work doing, which probably only have raised the asking price to £80,000 when completed.

Anyway, a series of unfortunate events occured, meaning we no longer had any money to finish off the house. All major work done, mainly cosmetic and minor repairs. Some mistakes on our part, some unforeseen circumstances etc. meant we are now forced to sell...rather that than repo. plus our personal circumstances now demand it too.

As the house is only valued at £67,000 compared to their 'estimated' £104,000 the loan was based on, do we have any back-up there? I understand they cannot predict the exact amount of any house, nor predict the fluctuation of the house prices on the market, but isn't this gap significantly large especially telling them at the time the estimation wasn't anywhere close?

What do you mean let them 'win'? We have to sell the house, and there is a shortfall on the loan paying the mortgage so I assume refinancing is needed? I was expecting a short shortfall, but a settlement figure like this knocked me off my feet!

I really don't want to sell the house - lots of potential in it and in a great area. Sad thing is, I have to

Sorry about the long winded reply.

CLAPTON

what was the original loan
what was the apr
what is the term
what was the monthly payment
was there any PPI

how many payment have you made
any payment free period
any missed payments

NikNakpaddywhack

EDIT: I know someone will ask why I accepted the loan, and this is why. I have had bank loans in the past and paid off early. Interest has been paid and as Mitchaa says, a normal High Street Bank loan does normally take into account the time you originally agreed to and will no longer do when settling thus interest owed back or not even taken into account perhaps. We took the loan to finish the house, get maximum value and sell, with a vision to settle the loan early, not expecting a ridiculous way of calculating the figure. Over two years, couldn't imagine the interest paid would be over £3000.

Xbigman

There are lots of different ways to end up owing more than you started with so it is entirely possible to discover you've paid off virtually nothing after a few years.
On that size loan an early settlement fee of a few hundred is about right.
The figures might have been a shock but I suspect they are correct.

Selling your property could be a problem. If there will be a shortfall on repaying the second charge you will need permission from Blackhorse to sell, which you might not get. Or you will need to find the money to clear the second charge up front.

I would encourage you to stay put and tough it out. See the main mortgage holder and see if they can offer you any help. Switching to interest only might be an option.

Meanwhile visit the debt free board and get advice on reducing your outgoings, which might help.
Regards


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