Paid a lump sum to my mortgage but the payment remained the same.

abbas5001

Hi all,

I had a mortgage outstanding of £80,000. Recently i paid £40,000 to it as a lump sum.

My mortgage payment was on an interest only basis at a rate of 4.95% and so was £330 per month (4.95/100*80,000/12 months=£330 per month).

After i made the lump sum payment i expected the payment to go down to £165 (4.95/100*40,000/12 months - £165.

However, the payment remained the same, when i spoke to the bank they said i should have told them i wanted the mortgage payment to be recalculated as they don't do it by default. I said that it is an interest only mortgage, so i would expect them to take the payment based upon whatever interest is calculated on the amount owed. I said to them i have paid £330 to you based on a debt of £80,000 but the debt in actual fact was £40,000.

They didnt seem to agree with this so igave up.

Am i making sense or have i made a mistake?

Thanks

P.S. Provider is Bank of Scotland.

kazwookie

abbas5001 wrote: »

Hi all,

I had a mortgage outstanding of £80,000. Recently i paid £40,000 to it as a lump sum.

My mortgage payment was on an interest only basis at a rate of 4.95% and so was £330 per month (4.95/100*80,000/12 months=£330 per month).

After i made the lump sum payment i expected the payment to go down to £165 (4.95/100*40,000/12 months - £165.

However, the payment remained the same, when i spoke to the bank they said i should have told them i wanted the mortgage payment to be recalculated as they don't do it by default. I said that it is an interest only mortgage, so i would expect them to take the payment based upon whatever interest is calculated on the amount owed. I said to them i have paid £330 to you based on a debt of £80,000 but the debt in actual fact was £40,000.

They didnt seem to agree with this so igave up.

Am i making sense or have i made a mistake?

Thanks

P.S. Provider is Bank of Scotland.

I would ring them up in a calm manner and ask them again.

SavingSteve

You are both right.

1) By default they will not reduce the amount the take each month. Anything over the interest they are now due will go towards reducing your balance further.

2) If you want them to reassess the amount they take each month you can ask them to and they will.

Any payments already made aren't 'lost' (see point 1) so you're no worse off.

Thrugelmir

abbas5001 wrote: »

so i would expect them to take the payment based upon whatever interest is calculated on the amount owed.

Too complex to administer thousands of mortgages in this manner. Many systems are built to recalculate at the next interest rate change. Nor can the lender read your mind as to your intentions.

By continuing to pay the higher amount you'll be repaying your mortgage even quicker. As in effect you've switched to a repayment mortgage.

LeadFarmer

Your payments have remained the same but your mortgage will now be paid off sooner. If you want your monthly payments to be reduced accordingly, then phone them back and tell them, but then your mortgage won't be paid off any quicker, just cheaper monthly payments.

abbas5001

Thrugelmir wrote: »

Too complex to administer thousands of mortgages in this manner. Many systems are built to recalculate at the next interest rate change. Nor can the lender read your mind as to your intentions.

By continuing to pay the higher amount you'll be repaying your mortgage even quicker. As in effect you've switched to a repayment mortgage.

I would expect that if a repayment mortgage, but on face value with an interest only mortgage i would have expected the monthly payment amount to be directly related to the amount owed and the interest hence worked out.


Anyway, i wouldn't mind if the extra money that was taken was used to reduce the deficit but it hasn't https://snag.gy/aTusP5.jpg

Thrugelmir

abbas5001 wrote: »

I would expect that if a repayment mortgage, but on face value with an interest only mortgage i would have expected the monthly payment amount to be directly related to the amount owed and the interest hence worked out.

Many mortgage systems are old legacy software. Designed and built many moons ago.

noh

abbas5001 wrote: »

...................


Anyway, i wouldn't mind if the extra money that was taken was used to reduce the deficit but it hasn't https://snag.gy/aTusP5.jpg

Your statement quite clearly shows that your payment has been used to reduce your total outstanding balance.

Thrugelmir

noh wrote: »

Your statement quite clearly shows that your payment has been used to reduce your total outstanding balance.

Likewise the interest charged has reduced. To reflect the lower amount owed.

noh

Thrugelmir wrote: »

Likewise the interest charged has reduced. To reflect the lower amount owed.

Indeed.
As the first lump sum payment was not made until the 20th of the month interest was charged on £80588 for nineteen days and on a lesser amount for 11 days.
Next months interest should be around £166 if no more lump sum payments are made.

abbas5001

noh wrote: »

Indeed.
As the first lump sum payment was not made until the 20th of the month interest was charged on £80588 for nineteen days and on a lesser amount for 11 days.
Next months interest should be around £166 if no more lump sum payments are made.

ok, thanks for making that clear. i appreciate it