Interest Only Mortgage Overpayments

RootieKazootie

I am very confused with what the bank is trying to do to my Mum with her interest only mortgage. I'll keep the numbers even to simplify the situation... 

So say the mortgage is for £100,000 on an interest only deal. For a while my Mum briefly received a benefit which covered the mortgage, unbeknownst to her the benefit was actually making overpayments which came to a total of £3,000 which the bank kept separate, as one would think to put towards the end of the term with her in essence paying £97,000 towards the £3,000. Roll on time to now and during the higher rates she is struggling to pay so she spoke to the bank about the £3,000 and opted to have the bank draw on the 3K for 6 months to make the £500 payments.

Now here's the thing, she gets a statement saying now the mortgage is £103,000 up from £100,000. And they gave her all this spiel about it being a 3K loan when she phoned them to challenge it and has lodged a complaint because in the first instance it was not explained that way.

My ultimate question to everyone and anyone is if you make an overpayment on your interest only mortgage and it seemingly sits there waiting for the term to end to go towards the final payment and you decide to draw on it then the £100,000 just stays the same surely? You'd just owe the full amount? How can you owe 3K on top of the original loan when that 3K was an overpayment making a pencilled in balance of 97K? It's totally baffled me.

I still think the Interest only mortgage was missold to her. Would be 80 years old at the time it ends with no savings and only on a basic pension.

Any help or advice would be greatly appreciated, I'm not sure I trust what the bank is saying. 

amnblog

How is the Bank 'saying it'. On the phone to Mum or in writing?

Given recent legislative changes Mum would be considered 'vulnerable' so the Bank needs to take extra care to make sure she understands everything.

As to how the overpayments have been treated, or why the mortgage is there in the first place we don't know enough about the case to assess that.

tacpot12

Your Mum can make a formal complaint to the bank if she doesn't agree with the explanation of why the amount borrowed has increased. I do think she should do this, and in the letter she writes complaining she should ask them to adjust the mortgage so it is as you think it should be. You can help her with the wording, but she needs to sign it. 

You can make a seperate complaint about the misselling of an interest-only mortgage. A fundamental question was what was the bank told about how the mortgage was to be paid off. If your mother agreed to sell her home when it needed to be paid off, then she really needs to stick by that agreement. 

jlfrs01

What may be telling is in the original post it was stated that mum couldn't afford to pay now due to higher rates. If it's a case that the interest rate on the loan has gone up (either because a fixed term has ended and she's on standard Variable or because she has a Tracker/discount off SVR), then the balance will increase unless monthly payments are increased to keep inline with the new rate. Taking the £3k overpayment paid isn't really a "loan" as such, it's just going towards the new (higher) interest against the original loan.