16 years paying £42,500 mortgage – only £4,000 paid off it!

SunshineGirl_4

I would welcome advice from any mortgage experts (Martin in particular) if they feel I have a case for complaint.

I have just paid off my mortgage after selling the house. The £42,500 mortgage was taken out in 1990 and was a repayment mortgage.

My query is against what I have actually paid off the mortgage after 16 years. When I queried this a couple of years ago with the lender, I was told that for each £250 payment (which was the average payment when interest rates were low), I was only actually paying off about £50, ie a fifth of the actual monthly payment amount. The end result after the house sale completed was, I still owed them £38,500 which was taken from the house sale profits meaning I had only paid off £4,000 in 16 years!!!

Is it worth pursuing via a letter to the lender? I was informed by the solicitor that any complaint has to be directed at the lender first before referring to the financial ombudsman.

HelpWhereIcan

SunshineGirl wrote:

I would welcome advice from any mortgage experts (Martin in particular) if they feel I have a case for complaint.

I have just paid off my mortgage after selling the house. The £42,500 mortgage was taken out in 1990 and was a repayment mortgage.

My query is against what I have actually paid off the mortgage after 16 years. When I queried this a couple of years ago with the lender, I was told that for each £250 payment (which was the average payment when interest rates were low), I was only actually paying off about £50, ie a fifth of the actual monthly payment amount. The end result after the house sale completed was, I still owed them £38,500 which was taken from the house sale profits meaning I had only paid off £4,000 in 16 years!!!

Is it worth pursuing via a letter to the lender? I was informed by the solicitor that any complaint has to be directed at the lender first before referring to the financial ombudsman.

The figures you quote are amazing.

Your solicitor though is correct in that you will need to exhaust the lender's complaints procedure first before you can have the FOS look at it.

Have you any copies of old mortgage statements that may throw some light on why the balance reduced so slowly? They may show any charges that were applied to increase the starting balance (Mortgage Indemnity Guarantee, Arrangement etc) and the earliest ones may show whether it was a 'deferred payment/interest mortgage'.

Deferred Interest Mortgages would allow a very low starting payment because you only paid a portion/none of the interest due for the first couple of years.

The idea was to make homeownership affordable in times of high interest rates. :rolleyes: which sort of fits 1990 ish

Problem was the interest & capital that was not being repaid was being added to the loan, increasing the debt and attracting interest on the whole of the new, higher balance which was only being partially repaid meaning that the balance was increasing, attracting more interest... and so on. :eek: You may have only started repaying a much higher balance some years into the mortgage.

Other than that, the only thing I can think of to explain it could be that the mortgage was not always on repayment, but would expect that you would have known.

See what you can find or get from the lender regarding the history of your account and let us know what you can come up with.

Hope this helps

SunshineGirl_4

HelpWhereIcan wrote:

The figures you quote are amazing.

Have you any copies of old mortgage statements that may throw some light on why the balance reduced so slowly? They may show any charges that were applied to increase the starting balance
...
Other than that, the only thing I can think of to explain it could be that the mortgage was not always on repayment, but would expect that you would have known.

See what you can find or get from the lender regarding the history of your account and let us know what you can come up with.

Hope this helps

Thanks HelpWhereIcan for taking time to reply.

I do have all statements which I am going to spreadsheet tomorrow (today I have been occupied with bank charge reclaims!) I will note:

• all payments I have made
• any charges incurred
• sum total of payments versus amount outstanding

The fact that I don't think it is 'fair' to have paid a few thousand (approx £3,000) for each year multiplied by 16 years, and only paid off £4000 in total is obviously not going to win in a court of law if it came to that. What I really need is some kind of legal stick to hit them with (akin to the Bank Charge reclaim) so I have a real case to fight.

Anyone with mortgage/,legal expertise that can help me here?

maninthestreet

If you were paying off £50 per month of the capital, that equates to £600 a year, or £9600 over 16 years. To have paid off only £4000 in that time equates to a monthly capital repayment of about £20.

SunshineGirl_4

maninthestreet wrote:

If you were paying off £50 per month of the capital, that equates to £600 a year, or £9600 over 16 years. To have paid off only £4000 in that time equates to a monthly capital repayment of about £20.

You are right. It is even more depressing than I thought!

geo555

you have to remember that motgage interest rates were about 15% in 1990 and still 10% in 1992.
Your mortgage statement would look something like this

1990
Mortgage balance - £42500

Interest @ 15% - £6300

payments - £3000

1991
Mortgage balance - £45800

Interest @ 13% - £5950

payments - £3000

1992
Mortgage balance - £48750

Because of high interest rates, your loan increased by £3000 a year in the early years and its only been since the lower interst rates that you started to reduce your total.

You can view a history of interest rates here

https://www.moneyextra.com/dictionary/Interest-rate-history-003455.html

SunshineGirl_4

geo555 wrote:

you have to remember that motgage interest rates were about 15% in 1990 and still 10% in 1992.

I know. 15.4% seems to stick in mind for 1990. (I did originally type something about the interest rates in 1990 to this effect into my original post but then deleted it to keep it short). Even so, the overall repayment is not good.

jonesMUFCforever

geo555 wrote:

you have to remember that motgage interest rates were about 15% in 1990 and still 10% in 1992.
Your mortgage statement would look something like this

1990
Mortgage balance - £42500

Interest @ 15% - £6300

payments - £3000

1991
Mortgage balance - £45800

Interest @ 13% - £5950

payments - £3000

1992
Mortgage balance - £48750

Because of high interest rates, your loan increased by £3000 a year in the early years and its only been since the lower interst rates that you started to reduce your total.

You can view a history of interest rates here

https://www.moneyextra.com/dictionary/Interest-rate-history-003455.html

I don't know of any NORMAL mortgage where you original debt increases.
Either you are on a fixed rate or your monthly payment increases/decreases with interest rate movements.
I can't see here how a mortgage debt would increase!

maninthestreet

Tend to agree with previous post - no mortgage lender back in 1990 would allow the mortage debt to have increased like this on a repayment mortgage.

HelpWhereIcan

maninthestreet wrote:

Tend to agree with previous post - no mortgage lender back in 1990 would allow the mortage debt to have increased like this on a repayment mortgage.

Unless it was a deferred interest mortgage as I explained in my first post.

EdInvestor

You guys don't understand how mortgages work at times of high inflation/high interest rates.The concept is called "front end loading" and works exactly as geo555 describes as the interest is repaid before the capital.

It was very typical after five years to have paid off only a token amount of your mortage (a tenner perhaps). You didn't start making real inroads into repaying the capital until quite near the end of the term certainly not till after 15 years.

This is why no-one would ever think of repaying a mortgage early: smart people did the opposite - allowed inflation to erode the real value or what you owed.

BTW, the end of front-end loading is one reason why house prices have been able to go up so much without a crash following.

Explanation of this on page 8