Annual review of mortgage rate - do we pay more?

C

clipper

Registered User
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46
Hi,
I think I smell a rat with this one and am hoping someone can shed some light on this for me. We have an ECB tracker mortgage with NIB and last August, requested it to be reduced from 25 years to 20. Since then, interest rates increased but our repayments remained the same. I finally got in touch with the manager (name of branch deletedbranch seem to have a policy of not answering the phone) to query this and she said our loan was on annual review - the repayment remains the same all year regardless of interest rate changes, at the end of the year, the bank reviews the loan and decides how much is then owed based on the interest changes over the year. We didn't request this arrangement and my understanding of an ECB tracker is that you get interest changes (up and down) passed on immediately. I assume we'd end up paying way more interest on the "annual review" technique, the manager claims we don't but is there any way to calculate how much extra we'd end up paying using this annual review method?
I hope someone can help,
Thanks
 
fitzer said:
We have an ECB tracker mortgage with NIB and last August, requested it to be reduced from 25 years to 20.
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Why did you do this rather that just accelerating the repayment of it and thereby reducing the effective term? Now that you have reduced the term you should check if putting in place alternative mortgage protection life assurance cover might save you a few bob. Shop around for quotes.
Since then, interest rates increased but our repayments remained the same.
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Sounds odd if this is not a fixed rate mortgage.
she said our loan was on annual review - the repayment remains the same all year regardless of interest rate changes, at the end of the year, the bank reviews the loan and decides how much is then owed based on the interest changes over the year.
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Sounds very odd...
We didn't request this arrangement and my understanding of an ECB tracker is that you get interest changes (up and down) passed on immediately.
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Yes - that's correct.
I assume we'd end up paying way more interest on the "annual review" technique, the manager claims we don't but is there any way to calculate how much extra we'd end up paying using this annual review method?
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Are you absolutely sure that you are on a variable/tracker rate? Who is the lender? Ask them for a clear explanation of what's going on and check your loan terms & conditions. If necessary complain and/or take the issue to [broken link removed] or the [broken link removed].
I hope someone can help,
Thanks[/quote]
 
Hi Clubman,
Thanks for your reply. The loan is with NIB and I'm positive its an ECB tracker mortgage (variable rate), we have just organised for it to be changed to the lower LTV ECB tracker mortgage but theres no doubt this was what the original loan was. Theres nothing about the "annual review" in the terms & conditions and whilst I queried this by email, the manager rang me with the explanation. Obviously I'd like her to put this explanation in writing so I can forward to IFSRA but I suspect I won't get it, will keep trying..
On your first query, I reduced the term rather than accelerated the repayment amount as I would need to increase the repayment amount as the interest rates increase to keep it a level where we are paying at least 50% principle a month
 
This sounds very odd to me too. It is something we should probably all be keeping an eye on in light of recent interest rate rises. It's easy to check what you're paying out when interest rates are static.

I received an end of year statement from BOS recently and noticed that the principal had risen by 1k on an interest only mortgage. I rang and asked why, and was told that with recent interest rate hikes, I was effectively behind in payments?:confused: I wanted to know why I wasn't informed of this as it appears I've been paying interest on interest for the last 6 months!

The example I was given was that if interest rates rose in January, they'd send a letter stating this would take effect from February onward. In fact what they meant was that the increase would apply from January but I'd only start paying it in February!! The arrears was simply added to the principal and I was never informed. I'm not a happy camper particularly as Bank of Scotland won't make any concessions to current customers on interest rate only. I'll be shopping methinks!
 
Are you sure that they didn't misinterpret your previous instructions to them and thought that you wanted to fix your repayments at a particular level?

I would try to get an explanation in writing. If that fails contact IFSRA or the FSO.
 
Thanks Clubman, I even have an email in August confirming that it had been set up for 20 years. To me it sounds like a mumbo jumbo excuse for them not increasing the repayment rate and in effect us paying more, I just don't know how to calculate how much more we end up paying.
With regard to the mortgage protection life assurance cover, once we decreased to 20 years I got onto our broker who told me there is no need to decrease this cover as we''ll be entitled to money for 5 years after the mortgage has been repaid and in effect it's life assurance, but our policy is a decreasing term policy so I suspect once the loan is paid off, we wouldn't be entitled to any money in the remaining 5 years after this - do you think this is correct? I changed policy once and it was a bureaucratic nightmare so I can't imagine it being worth changing again..
 
fitzer said:
I just don't know how to calculate how much more we end up paying.
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Is Karl Jeacle's mortgage calculator of any use?
With regard to the mortgage protection life assurance cover, once we decreased to 20 years I got onto our broker who told me there is no need to decrease this cover as we''ll be entitled to money for 5 years after the mortgage has been repaid and in effect it's life assurance
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But do you really need this? If not then check if changing cover might save you a few bob. If it's marginal then don't bother switching.
but our policy is a decreasing term policy so I suspect once the loan is paid off, we wouldn't be entitled to any money in the remaining 5 years after this - do you think this is correct?
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I think that you would - but obviously you'd have to die first! :p See here:

Mortgage Protection - The assumed mortgage interest rate is 6% per annum.
I changed policy once and it was a bureaucratic nightmare so I can't imagine it being worth changing again..
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It shouldn't be. Maybe this was your lender's fault (again?)?
 
As far as I'm aware you have to actually switch a mortgage protection policy into a life assurance policy. Otherwise when the mortgage is over the policy is null and void. I think a lot of these policies end up being a very expensive gimmick. If, hopefully, nothing happens to you or your spouse, the insurance company walks away having made a packet on you. It makes sense to change it a life insurance policy at the end of the term but I'm told, this is something that has to be negotiated at the outset. Banks etc. used to accept a life insurance policy assigned to them.
 
liteweight said:
As far as I'm aware you have to actually switch a mortgage protection policy into a life assurance policy. Otherwise when the mortgage is over the policy is null and void.
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I had a convertible term policy and it was still valid after the mortgage was cleared before term until I cancelled it. Not sure if the same applies to non convertible level term or decreasing term policies though.
If, hopefully, nothing happens to you or your spouse, the insurance company walks away having made a packet on you.
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But that's the nature of insurance. Obviously the individual(s) need to decided if the cover is needed once the need for mortgage protection is gone.
 
I suspect that the branch manager is misinformed. Contact the Head Office section which deals with mortgages.

You did this last August - did you not get a letter telling you what your repayments would increase to?

When interest rates rose and your repayments didn't, did you not ask the bank immediately why that did not happen?

Did you get notices of the interest rate changes and the revised monthly repayment?

If the amount of interest charged to your account increases and your repayments don't, then the balance outstanding will increase. You should make a once off payment now to reduce the balance outstanding.

Put your question in writing to the HO of National Irish Bank and if you don't get an answer, the Ombudsman will get one for you.

Brendan
 
ClubMan said:
I had a convertible term policy and it was still valid after the mortgage was cleared before term until I cancelled it. Not sure if the same applies to non convertible level term or decreasing term policies though.
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As far as I know, it doesn't. Our broker told us that it CAN depend on your age, whether they will offer you a convertible term policy.

ClubMan said:
But that's the nature of insurance. Obviously the individual(s) need to decided if the cover is needed once the need for mortgage protection is gone.
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Well, my point is that it used not be the nature of insurance. When we got our first mortgage back in the day, the Bank asked us to assign our insurance policy to them. Insurance company had no problem with this. When house was sold, the Bank was taken off the insurance. Same with second house, same insurance policy. Nowadays that arrangement is acceptable to neither Bank nor Insurance company. Just wonder why thats all? I wonder how much these insurance companies make on people who haven't had the foresight to ask for a convertible term policy and, on those who aren't allowed to do it because of their age.
 
Hi Brendan,
Thanks for your input, we did get a letter stating the repayment amount in August but didn't recieve any notices later as the interest rate payments increased. I must admit it was very lax on our part to not follow up with the problem immediately. I'm going to send the complaint to the head office. I do use Karl Jeacle's mortgage calculator which is great but can anyone recommend a site that would list the interest changes and the dates they changed.
 
liteweight said:
As far as I know, it doesn't. Our broker told us that it CAN depend on your age, whether they will offer you a convertible term policy.
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I'm pretty sure that some MPLA policies (whether convertible, level or decreasing term) still pay out even if the mortgage is cleared.
Nowadays that arrangement is acceptable to neither Bank nor Insurance company. Just wonder why thats all?
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Are you sure that it's not acceptable to any LA or mortgage provider? I thought that some still did faciliate assignment of existing LA policies for the purposes of mortgage protection?
 
The annual review mortgage is not unheard of although I didn't know NIB offered it. Instead of moving payments up and down when interest rates change the payment is only changed once a year and is recalculated to take into account rate rises or decreases over the preceding 12 months so that the mortgage is repaid over the initial term - it's rather like a budget plan and is not a scam or a rip off.

Sarah

www.rea.ie
 
Do they not explain this approach to customers? Doesn't sound like anybody did explain properly it to fitzer.
 
ClubMan said:
I'm pretty sure that some MPLA policies (whether convertible, level or decreasing term) still pay out even if the mortgage is cleared.
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That's good. They must have a life assurance element to them then as there would be no mortgage to clear.

Are you sure that it's not acceptable to any LA or mortgage provider? I thought that some still did faciliate assignment of existing LA policies for the purposes of mortgage protection?
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Last time I dealt with a broker who claimed to deal with all lending agencies (except those who will not deal with brokers), this is what I was told. Granted, I was looking to avoid all mortgage protection and was allowed to do so. Offering up the life policy was the first step and this was refused. I didn't understand why as it more than covered the outstanding mortgage. I would have fought this battle but my insurance broker told me that insurance companies no longer like to assign policies to lenders!:confused: We have two children who are 21 and 24, so this was not the reason. At the time they were both over 18. I'm getting more cynical the older I get but I felt this was due to the insurance companies wanting to sell mortgage protection.

We had to supply proof of our age and a letter from our accountant to state that, in the event of our death, our estate could cover the mortgage.
 
liteweight said:
That's good. They must have a life assurance element to them then as there would be no mortgage to clear.
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A mortgage protection life assurance policy IS a life assurance policy! The fact that it is decreasing term and (initially) assigned to a mortgage lender is arguably merely incidental.
Last time I dealt with a broker who claimed to deal with all lending agencies (except those who will not deal with brokers), this is what I was told. Granted, I was looking to avoid all mortgage protection and was allowed to do so. Offering up the life policy was the first step and this was refused. I didn't understand why as it more than covered the outstanding mortgage. I would have fought this battle but my insurance broker told me that insurance companies no longer like to assign policies to lenders!:confused: We have two children who are 21 and 24, so this was not the reason. At the time they were both over 18. I'm getting more cynical the older I get but I felt this was due to the insurance companies wanting to sell mortgage protection.

We had to supply proof of our age and a letter from our accountant to state that, in the event of our death, our estate could cover the mortgage.
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Would be interesting to hear from those who work in the industry on this.
 
An industry view? Pure codswallop! As long as their is sufficient life cover for the term and amount of the mortgage and it is legally assignable (i.e. not death in service benefit or pension term assurance) then any lender will be happy to accept it as security for the mortgage.

If a mortgage is cleared early and any associated insurance is not cancelled and there is subsequently a claim the remaining sum assured will be paid to the estate of the deceased. If the policy expires before the live(s) assured it will cease with no value.

Sarah

www.rea.ie
 
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