Mortgage Payments Hike

RodColin

A possible 'parting shot' on this as you said it would be helpful to know more precise figures, so have checked these. 

My original mortgage was £66k. At the end of 2009 the balance was £54,833 and the monthly payments were £426. Following redundancy I made a £15k overpayment in August 2010, and my required monthly payments reduced to £315, and remained at this level for over 4 years. Then the required monthly payments suddenly rose from £315 in 2014 to : £455 in January 15, £469 in February 15, £483 in May 15, i.e. £168 monthly increase in total!

So I applied for a '10 year fix' in May 2015 when there was still over £1,000 in the Reserve, and this was approved on 15th June. The new deal with Nationwide in July 15 reduced the monthly payment back to £303.and the new end date set at May 2027, nearly 5 years away.  What a high price.  No wonder I am now asking questions.

Annisele

RodColin said:

My original mortgage was £66k. At the end of 2009 the balance was £54,833 and the monthly payments were £426.

I'm struggling to make those figures work, and I'm wondering if there might have been a mistake before 2009. (It's of course entirely possible that my maths is dodgy somewhere!)

You said that you were 59 in 2010, and that your mortgage was due to be repaid before you were 65. That suggests your mortgage was supposed to be repaid sometime in 2016 - i.e. that in 2009, it had about 7 years remaining.

If you hadn't made an overpayment but continued at £426 a month, then over those next 7 years you'd expect to have paid  7 * 12 * £426 =  £35,784 - which is considerably less than even than £54,833, and certainly less than £54,833 plus the interest on that debt.

You say the original mortgage was £66k. Can you tell us when you took that out, what the original term was, the original interest rate, and any rate changes between then and the date you made the August 2010 overpayments?

RodColin

The original mortgage was taken out in mid 2006.  However I slipped up in one detail of my account.  The mortgage was to be over 15 years and would have ended soon after my 70th birthday, not my 65th.  The building society asked me why it was being scheduled to go beyond my 65th birthday.  I replied that I planned to repay the last few £k out of my pension lump sum which I expected to receive upon my retirement at age 65.  Sorry about that mistake. 

In fact of-course my career was cut short at age 59, which was the beginning of the financial problem.  I had to use a big part of my redundancy lump sum to 'buy' the same civil service pension figure that I would have got at age 65 (though still not enough to live on on its own).   Hope this makes sense.

k3lvc

RodColin said:

The original mortgage was taken out in mid 2006.  However I slipped up in one detail of my account.  The mortgage was to be over 15 years and would have ended soon after my 70th birthday, not my 65th.  The building society asked me why it was being scheduled to go beyond my 65th birthday.  I replied that I planned to repay the last few £k out of my pension lump sum which I expected to receive upon my retirement at age 65.  Sorry about that mistake. 

In fact of-course my career was cut short at age 59, which was the beginning of the financial problem.  I had to use a big part of my redundancy lump sum to 'buy' the same civil service pension figure that I would have got at age 65 (though still not enough to live on on its own).   Hope this makes sense.

That's a big detail to miss out (but still doesn't explain the financials and why the increase)

@Annisele how does your calculation now look based on a 12yr rather than 7yr term - presumably a lot closer ? 

Annisele

Even with a 15 year term from 2006, a payment of £426 and a 2009 balance of £54,833 doesn't make sense to me.

9 years of payments at £426 a month makes £46,008 - which is still less than £54,833.

Even if it was actually 10 years of payments, that still only takes the total to £51,120.

But I can see the figures making sense if the term was actually 21 years - i.e. the mortgage was always intended to end in May 2027. If that's the case, then as at 2009 there'd have been about 18 years remaining on the term. A mortgage balance of £54,833, a remaining term of 18 years and a payment of £426 would imply an interest rate in the region of 6.2%, which wouldn't have been crazy back then if it was a fix taken out before the financial crisis. But I'd still like to know the original interest rate, and any changes between the mortgage being taken out and the date of the overpayment.

[Edit - so I managed to add 5 years on to the 7 year term, and come up with 9 years...you don't want to be trusting my arithmetic!

12 years at £426 a month makes £61,344, which is possible, and implies an interest rate around 2%. But the actual interest rate matters here.]

TheAble

For each missed payment or partial missed payment they probably should have recalculated your new monthly payments immediately. If they kept them at £315 even while being missed, it would create a deficit that would cause your new payments to ultimately spike above the original.

Eg (figures just for illustration)

Month 1 miss £315, new payment £325
Month 2 miss £325 new payment £340

Etc

This would have caused the reserve to get used up quicker but would mean that once used your payments revert to the original.

By missing payments, what's happening is that the remaining sum owed is not going down, but the remaining months until settlement are getting fewer. So every missed payment requires a fresh calibration to ensure you stay on track.

RodColin

That response sent itself before I had finished typing.  To finish off on interest rates, these were reasonable to modest
e.g. 2007 4.89% - 5.39% ; 2008 4.64% - 4.14% ; 2009 3.5% - 2.5% ;  2010 2.5%