A friend has just found out that her mortgage company (Agreed Mortgages) have been steadily increasing the amount of interest charged on her mortage (1/4 percent every quarter for last 12 months). It is a variable rate mortgage, but she received no notification of the increase in interest and the direct debit payment has been kept at the original amount - therefore paying off less capital each month.
Is this legal/right/allowed for them to increase rate without notification and without adjusting the monthly payment?
So you are saying that they have jacked it up by 3% when base rates have only gone up 1%? I would be suspicious of a company that does this type of thing unless it was a *very* good rate (ie a well below base "teaser rate") to start with!
Well that is only 1% over the last year, which is broadly in line with base rates that increased to 3.75 in Nov 03 and are currently 4.75%.
It is very common for mortgage lenders to apply a 'budget' scheme so that the Payments are only adjusted every 12 months. There are definitely pro's and con's about this way of doing things and it is a matter of personal preference as to which is best. When rates drop, then you pay off more capital, and vice versa. Of late you have seen a 'versa'.
In the same way that banks dont write to every customer when interest rates change it isnt a requirement for mortgage lenders to do the same thing, especially when the monthly payments arent going to change, and there isnt much you can do about it UNLESS the interest rate changes are out of line. It sounds like you are on a tracker so if Bank Base Rate changes, so does the mortgage rate.
All of this is par for the course and will be in the lenders terms and conditions.
In direct answer to your questions it is legal and allowed, Whether it is RIGHT or not depends on personal preference.
Now I look at it, I did confuse the two, and that only 4 increases (not 12!) over the year would make perfect sense. I now wonder what the op's fuss is if they are only reflecting prevailing rates.
Because the bank didn't tell the customer of the increase and/or ask her to increase her monthly payment. Effectively, the interest is now accruing faster than she is paying off the capital, so come the end of the term, she will still have an outstanding balance - of course if rates go down and they don't tell her and she continues to pay the same amount, she could pay it off sooner, but for that she might even pay a early redemption fee depending on how unscrupulous the company is, to charge a fee so long after taking on the mortgage.
I would be very surprised if what you say is the case. Many reputable lenders offer an annual review scheme where that the payments are changed just once a year. I know of no lender that will charge a penalty for paying a loan off early in the way you describe.
For instance, do they say that the interest rate will follow the changes in the base rate, without prior notification? Do they say that the payments will only be amended once a year?
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