I came off Annual Review and overpaid - monthly mortgage payment nearly halved

Polobird#1

In 1996 I took out my mortgage - unfortunately it was on annual review which I didn't know with Nationwide - I wondered why my balances were going up and down - hadn't a clue what was going on - when I challenged Nationwide in 2004 they sent me a copy of my Mortgage Application with the unticked box to opt out of the scheme at the time -don't even remember this being discussed or brought up at the time - but now when I look back on old Mortgage Statements my monthly rate did rise or fall when rates increased or decreased so my monthly payments made did reflect this so I guess the question i'm asking is how did my end of year balance still increase when I made the monthly payments? - I came off annual review in early 2005?

Thrugelmir

Annual review means that your monthly payments were revised at the end of every 12 month period, rather than at every change of interest rate. Makes no difference overall in terms of repaying the mortgage. As a recalculation would have been performed that would have ensured that your mortgage would have been repaid by the end of the agreed term.

Polobird#1

But I have an interest-only mortgage - endowment in place - but my monthly amount did increase and decrease as interest rates increased - decreased and end of year balances did go up and down (mostly up) but I thought if on annual review then monthly payments did'nt change? Maybe i'm getting confused how it worked - mortgage down thankfully to £30,000 with 3.5 years to go - Thankfully!

Thrugelmir

Bank base did increase from 1996, peaking in 2000. Then falling again before peaking again in 2007. Only in the past 10 years have interest rates fallen and changes in rate been minimal.

Over time ones memory does blur.

Polobird#1

Yes I can see that on the old statements - but why did the end of year balances still increase if I was already paying the monthly increased/decreased payment - Why did the balance show as increased if the payments had already increased with the the interest rate change? Thanks - sorry about all the questions.

Polobird#1

I am really worried about this now - if I was on Annual Review monthly payments shouldn't have changed until the end of year irregardless if interest rates increased or decreased - am I right? If so why did my monthly payments (shown as payments received to Mortgage Account) fluctuate according to interest rate changes at the time they changed? I am totally lost!

TrickyDicky101

Hi - can you provide some numbers around what you are observing. ie pick a year, state opening balance on 1st Jan and closing bal on 31st Dec and state what payments you made over the year (and what date) and confirm what the interest charged was (typically, you should be able to find all this information on one of your old mortgage statements if you still have them).

I agree with you (in the absence of further information) that what you describe doesn't sound wholly correct. It *may* be down to timing however or some other reason.

TrickyDicky101

I received a PM from the OP yesterday and tried to reply to the OP but for some reason I was unable to send a PM to him/her. Because there wasn't anything in the message that looked confidential (or that could be attributed to an individual) I have posted the message and my response below:

TrickyDicky101 wrote:

Polobird#1 wrote:

Thank you for your reply -I have got some figures along with rate changes - Can you have a look please?

Mortgage statement for year ended 21st December 1998
Opening Balance £44,081.65
Jan pyt Received £212.84
Feb pyt Received £254.99
Mar pyt Received £254.99
Apr pyt Rec £254.99
May pyt Rec £254.99
June pyt Rec £254.99
July pyt Rec £254.99
Aug pyt Rec £254.99
Sept pyt Rec £254.99
Oct pyt Rec £301.65
Nov pyt Rec £301.65
Dec pyt Rec £301.65

Property Insurance £148.38
Interest Charged £3160.84

31 December 1998 Closing Balance £44,233.16

Interest Rates %
1 Jan 1998 6.60%
1Sept 1998 7.00%
1 Oct 1998 9.10%
1Nov 1998 8.80%
1 Dec 1998 8.30%

Repayment of Interest Only on £43,833 (originql qmounr) renainder on Capital and Interest Agreed
redemption date 30 September 2021.

From February 1999 your monthly payment calculated at 7.55% will be £267.06
Property Insurance £12.68
Scheme For Maximum Advance £21.91

TOTAL £301.65

Thank you for any guidance you can give me.

OK what I've done with this is sum up your payments made in the year which is £3,157.71 which compares very closely to what they have declared as charged (£3,160.84). It's close enough probably not to worry about the £4-odd difference.

However, the closing balance is derived from

Op Bal LESS Your Payments PLUS Interest PLUS Insurance = Closing Bal

So it looks to me like the insurance each year (well, strictly Ive only seen this year so you would need to check the others) has been added on to your balance without your payments being increased to reflect.

It's worth noting that I couldn't work out how the repayment amounts had been calculated using the interest rates you quoted. The overall amounts for the year were close though.

I would be unhappy with Nationwide if I were you because it certainly looks like they have sold you insurance, added it to your mortgage balance, and not adjusted your monthly payments to reflect the increased debt owing. This means you end up paying interest on interest (ie compounding). However, please note that as the insurance amounts are relatively small, the compounding impact is also relatively small - but it is still annoying and does cost you money.

My experience of having a mortgage only started in 2005 (also with NW but I didn't buy insurance from them and it was never added to the balance and wasn't interest only either) so I do not know if practices such as this were commonplace back in the 90s.

One of the brokers such as KingStreet who has great experience might be able to address whether this was something banks/building socs did back then.

With your permission I would like to post the above (all of it) back into the thread (rather than just PM) as it means others have the chance to see it and potentially correct any errors I may have made.

Polobird#1

Yes please post - would like to know if I have any case re: interest on insurance against Nationwide - any help would be greatly appreciated! Thanks