Scenario

 

Customer took out a repayment mortgage for £85,000 in 2000 on a fixed rate of 5% but when checking his statements in April 2009 the rate being charged was 6.50%. After further investigation it was established that the customer was put onto the wrong fixed rate product.

 

Lender	Halifax
Mortgage	£85,000
Start Date	10th February 2000
First Payment	10th March 2000
End Date	1st May 2010
In MIRAS	Yes
Term	25 years
Fixed rate	6.50% for 10 years        - applied
Fixed rate	5% for 10 years             - should have been used

 

Set-up two adjustment sets:

 

1)             ‘FixRate1’ with a 6.50% fixed rate for 10 years, starting on 10^th February 2000 (Enter 10y for the ‘to date’)

 

2)             ‘FixRate2’ with a 5% fixed rate for 10 years, starting on 10^th February 2000 (Enter 10y for the ‘to date’)

 

Select the lender and interest rate for the ‘Halifax’ and select repayment for both the actual (A) and notional (B) calculation types, entering a term of 25 years. Select ‘FixRate1’ for the actual adjustment (A) and ‘FixRate2’ for the notional (B) adjustment.

 

Comparison Screen

 

 

Observations

 

1.         The payments are lower, as expected

 

2.         Balance is lower when interest rate is lower. This may not be expected but is correct.

 

3.         Redress is a result of higher outgoings and a lower balance.

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