Increase in term of loan without agreement

H

houseclearou

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My parents have a mortgage since October 1992. They took out the mortgage for a term of 15 years. In a recent discussion with their bank manager, he mentioned that their loan would be fully re-paid by May 2008. They disagreed and said it would be paid in October 2007. On further research the bank notified them that the reason for the increase in term was due to the currency crisis and that the normal industrial practice at the time was to increase the term to compensate for the increase in markets rates at the time. My parents had taken out a variable rate mortgage and always understood they were paying the full market rate. They didn't receive correspondence informing them of an increase in the term of the loan. Unfortunately, I'm too young to know whether or not their situation is normal for this time. It sounds very unfair that they weren't informed or that they weren't given the option of paying the extra interest rather than it being capitalised. Any advice much appreciated.
 
houseclearou said:
On further research the bank notified them that the reason for the increase in term was due to the currency crisis and that the normal industrial practice at the time was to increase the term to compensate for the increase in markets rates at the time.
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Never heard of that approach myself and it seems very odd that they would have no correspondence about this matter. Are you sure that there was not some quid pro quo for the increased term such as a reduction in the normal rate of interest payable during the period of double digit interest rates during the currency crisis (thought that was the late 80s rather than early 90s?) or something? Who is the lender - that could help clarify matters.
 
Hi Clubman

The lender is EBS and I think the initial rate was around 14%. They signed an agreement for a variable rate mortgage and they believed that even during the crisis of late 1992 and early 1993 that the rate they were paying was full market rate. It is now a shock to find out that the term has been increased. Perhaps this was normal for this time but I find it hard to accept.
 
They should write to the EBS asking for a written explanation of the whole matter. If it does not make sense or is otherwise unsatisfatory then they should make a formal complaint. If this doesn't help then they should take it to the [broken link removed]. On the face of things it doesn't make sense to me and sounds unacceptable.
 
They received a written letter from the bank. I had a look at it and the gist is that the day after they took out the loan in 1992 there was a 3% increase in the rate due to the currency crisis. In the months that followed there was a further increase of another 3%. As the bank calculated 'interest on an annual stop' they capitalised interest onto the loan amount. It is this capitalised interest that now means that my parents loan won't end at the expected date. The bank claims this method of calculating interest was the industry norm until replaced in 1996 by a 'monthly stop'.

I'm not sure if any of this makes sense to anyone. I would have thought that my parents would at least have been notified by the bank that their loan term was increasing and would have been given an option of paying the excess interest (rather than having it capitalised). I would appreciate any advice.
 
The technicalities don't make much sense to me. If it was me and I wasn't able to get a clear explanation from the lender that I could understand then I would start looking towards taking it up with IFSRA/FSO.
 
Hi Clubman

Is the only way of communicating with either IFSRA or FSO through the mechanism of a raising an official complaint? I would prefer to find out what's what before going down the route of a complaint.
 
I presume that they offer advice too. I've never dealt with them other than making complaints though. (No smart remarks at the back please!).
 
Hi

Does anyone know where I can get details of the mortgage rates in existance around 1992-1993? Many thanks.
 
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