Can anyone help explain this?

Bitsy_Beans

I've not posted on this board before so please be gentle

I wondered if anyone could explain to me in basic english why the following would happen

My parents have 12 months left on their mortgage. They have finished a fixed rate mortgage last month (May was to be their first month on Variable rate) and have one year of Mortgage life left.
Natwest wrote to them to let them know what their re-payments would be on the variable rate. Their fixed rate mortgage was 5.09%, Variable rate is 4%. The new repayment for figure for each month is £100 MORE than what they were paying under the fixed rate :eek:

How come the repayments increase when they are swtiching to a lower rate?? The interest is calculated daily and given that they are on a repayment mortgage the interest portion of their mortgage is significantly reduced (the break down on their mortgage payments shows them paying less interest as each month goes by and more in capital).

My dad has rung the bank to be basically told it's because they only have a year left they are squeezing them for every penny, it's what banks do when you come off a fixed rate........which really doesn't explain anything really.

My parents can't fathom it, neither can I so I wondered if any of you lovely people could explain it to me so I can report back

TIA

Annisele

I'm flummoxed by that too.

Has the mortgage somehow switched from interest only to repayment? (Though if it had, unless the mortgage is tiny I'd expect more of a jump than £100).

Has the term shrunk somehow? (I.e. has the bank previously managed to calculate repayments assuming there's a longer term left to expiry)?

Was it an offset, and money in the linked account has been withdrawn?

Are the rates definitely 5.09% and 4%? Not 4% above some other rate?

noodle

Bitsy_Beans wrote: »

My dad has rung the bank to be basically told it's because they only have a year left they are squeezing them for every penny, it's what banks do when you come off a fixed rate........which really doesn't explain anything really.

No, it doesn't. And it's absolute rubbish (and, with respect, it's very hard to believe that anyone at the bank said anything of the kind). There's no room for the bank to make any extra cash... they have to apply the mortgage rate to the outstanding capital... it's maths, there's no room to bung any extra cost in there.

What will be the outstanding capital on the mortgage on the day the fixed rate ends? What is the monthly repayment amount being quoted?, and what is the repayment day each month. Let's do the maths to see if the problem is with the new arrangement, or the old one.

Bitsy_Beans

Annisele wrote: »

I'm flummoxed by that too.

Has the mortgage somehow switched from interest only to repayment? (Though if it had, unless the mortgage is tiny I'd expect more of a jump than £100).

Has the term shrunk somehow? (I.e. has the bank previously managed to calculate repayments assuming there's a longer term left to expiry)?

Was it an offset, and money in the linked account has been withdrawn?

Are the rates definitely 5.09% and 4%? Not 4% above some other rate?

Nope rate is definately 4% and it wasn't an interest only mortgage. No money offset, it was a bog standard fixed rate mortgage.

noodle wrote: »

No, it doesn't. And it's absolute rubbish (and, with respect, it's very hard to believe that anyone at the bank said anything of the kind). There's no room for the bank to make any extra cash... they have to apply the mortgage rate to the outstanding capital... it's maths, there's no room to bung any extra cost in there.

What will be the outstanding capital on the mortgage on the day the fixed rate ends? What is the monthly repayment amount being quoted?, and what is the repayment day each month. Let's do the maths to see if the problem is with the new arrangement, or the old one.

Well the lady at the bank couldn't really explain it, I suspect my dad made the comments and she agreed <rollseyes>

Value of mortgage as at the 25th £15293.78 - whole amount outstanding, paperwork shows previous years payments as a portion of interest and capital which amounts to the final figure above.
New monthly repayment quoted was £1418.30 and parents were paying £1298.11 under the fixed rate. Final payment for mortgage will be made May 2012.

Appreciate both your comments and any help you can give if you need any other dtails hopefully I'll be able to give them.

DVardysShadow

Bitsy_Beans wrote: »

... Value of mortgage as at the 25th £15293.78 - whole amount outstanding, paperwork shows previous years payments as a portion of interest and capital which amounts to the final figure above.
New monthly repayment quoted was £1418.30 and parents were paying £1298.11 under the fixed rate. Final payment for mortgage will be made May 2012.

12 more payments of £1418.30 comes to £17019.60.

4% charged on £15293.78 is £15905.53. But the amount will actually be less than this, because the full £15293.78 is not being borrowed for the whole year.

There is a definite overcharge here or some error or another charge.

Gorgeous_George

My guess is that the lender has messed up and calculated the new repayment before the final monthly payment on the fixed rate has been applied to the account. Ring them and confirm but I'm sure it will work out right in the end.

GG

gallygirl

Could there be another charge involved? Something along the lines of 'to thank you for being a loyal customer and paying off your mortgage we're going to lump on a clearance fee of 2k. Why? Because we can', or similar?

SAK45

I'd call up again for a better explanation. Sorry, but I never rest until i've heard the same advice or answer from at least 2 people. So call I would call again and again until you are completely satisfied with the reasons for increase.

DVardysShadow

Gorgeous_George wrote: »

My guess is that the lender has messed up and calculated the new repayment before the final monthly payment on the fixed rate has been applied to the account. Ring them and confirm but I'm sure it will work out right in the end.

GG

Looks right. If the amount outstanding has 1 month of the current amount added, this makes £16591.89 outstanding. Payments of 17019.60 represents simple interest of 2.58%, which looks roughly right for a loan at 4% repaid over a year.

noodle

gallygirl wrote: »

Could there be another charge involved? Something along the lines of 'to thank you for being a loyal customer and paying off your mortgage we're going to lump on a clearance fee of 2k. Why? Because we can', or similar?

If there is any final fee then it wouldn't be very much, and would just be added onto the last payment. Also, bank should have no trouble telling you what it is.

Can you give a bit more info on your figures..

Was the balance you quote as outstanding for the 25th April 2011? What is the day of the month that the repayment is made? If the repayment is around the 25th of the month, does that £15k include or exclude the repayment made in April 2011? Does the £15k include interest right up until the date (if you don't know the last one, don't worry.. interest is only around £50 a month, so it doesn't make too much difference).

On a quick check, it doesn't look right.. and, as someone suggested, it might be that they calculated the monthly payment on a figure that didn't take into account the last repayment under the fixed rate. At those payments, and that interest rate, it should be paid off in Apri, not May.

TrickyDicky101

Hi

Here's how I think they have worked this out:

Outstanding balance £15,293.78

Nominal annual rate: 4% which equates to 4%/12 per month

Remaining term: 11 payments

Bung that in a mortgage calculator (repayments in arrears basis) and you get a monthly repayment of £1,418.30

So it looks like the remaining balance is being cleared over 11 months, not a full 12.