Further information about your mortgage
This booklet explains how we now manage your mortgage. It also explains how we managed your account before we made changes. The booklet does not set out to explain all our policies or procedures that apply to your mortgage. If you fold back this page, you can see a summary of the key changes to how we manage your account. The summary also says where you can read more detail.
Key mortgage changes at a glance Key change Read more about this Re-calculating your monthly payments Mortgages in different parts When making the changes to the way we manage your mortgage, we re-calculated your monthly mortgage payment (unless your account is in Deedstore or you are on our page 5 Budget Plan scheme). If you are on the Budget Plan scheme, we will re-calculate your monthly payment on your next anniversary date. We ll tell you how much it is when we send your next mortgage statement. If you have a product, when that product ends we ll also re-calculate your payment at that time. Your mortgage may be split into many parts. We call these sub-accounts. Each sub-account has its own interest rate, mortgage term and method of repayment, for example interest-only or repayment. Each sub-account has its own monthly payment, although we will still ask you for one total monthly payment. Mortgage account fee If we charged you a mortgage account fee when your mortgage started, we have put an amount equivalent to this into sub-account 98. Daily interest method We will not charge interest on this sub-account. Your monthly payment will include an amount to repay this sub-account over the remaining term of your mortgage, unless you have a lifetime mortgage. The changes mean that if we did nothing, unless you have a lifetime mortgage, you would pay us more interest over the life of the mortgage. However, we will refund the additional interest you have paid when you repay the account or switch to our latest mortgage conditions whichever happens sooner. We charge interest: on any money we lend you from the day we lend it to you on interest from the day after we add it to your loan on a charge from when we add it to your loan, and on a cost from the start of the second month after we add it to your loan. Any payment that you make will reduce the balance and therefore the amount of interest you are charged from the day that we receive it. Previously it was the day after we received it. page 9 page 10 page 12 Annual interest method Early repayment charge We charge interest on the amount owed on each sub-account from 1st January to 31st December each year. We charge interest to each sub-account on any transaction that increases what you owe from the day we apply the transaction until the end of the accounting year. Any credits* to each sub-account do not reduce the amount of interest charge until the start of the next accounting year. Lump-sum overpayments that you have pre-arranged with us do reduce the amount of interest we charge. *Credits reduce what you owe. If early repayment charges apply, these will be based on the amount you repay. Previously if you repaid in full these were based on the amount originally borrowed at that rate. page 14 As a concession, in each calendar year, we allow you to make regular overpayments or lump-sum overpayments of up to 10% of the amount owed at the start of each calendar year without you having to pay the early repayment charge. page 13 Regular and lump-sum overpayment It is no longer possible to round up your monthly payment to the nearest 1, 5, 10, 20, 50 or 100 but you can make regular overpayments of a fixed amount. If we use our annual interest method to calculate your interest, making regular overpayments may not be right for you as we no longer apply credit interest on overpayments of more than 250. Please contact us if your mortgage is on our annual interest method and you would like to change to our daily interest method. You can still make lump-sum overpayments. If we use our annual interest method to calculate your interest, as long as you tell us you are making a lump-sum overpayment, we will use the payment to immediately reduce the amount you owe and the interest charged. pages 16-19 1 2 153
Contents This booklet is in two sections: Section 1. This explains how we manage your account now. It is important that you read this. Section 2. This explains how we managed your account before. You only need to read this if you want to understand how we did things in the past. Page Subject Section 1 How we manage your account 5 We have re-calculated your monthly payments 9 Mortgages in different parts sub-accounts 10 Mortgage account fee 12 Mortgage interest 14 Early repayment charges 17 Regular and lump-sum overpayments 19 Underpayments 20 Mortgage statements Section 2 How we used to manage your account 21 Mortgage interest 23 Mortgages in different parts 25 Mortgage account fee 25 Monthly payment re-calculations 26 Regular and lump-sum overpayments 26 Early repayment charges 4
Section 1 How we manage your account This section gives more detail about the changes we have made to the way we manage your mortgage account. It also gives you useful information about how your account works. We have re-calculated your monthly payments When changing the way we manage your mortgage, we re-calculated your monthly mortgage payment (unless your account is in Deedstore or you are on our Budget Plan scheme). If you are on our Budget Plan scheme, we will re-calculate your monthly payment on your next anniversary date. We ll tell you how much it is when we send your next mortgage statement. If you have a product, when that product ends we ll also re-calculate your payment at that time. Why has my monthly payment changed? Monthly payments may have changed for a number of reasons such as the following: you have made overpayments; payment holiday; you have missed one or more monthly payments; we have added a cost or charge to your loan; you have taken out additional borrowing you have made underpayments or taken a and have not paid the interest due for the period from the day we released the money to the end of that month; we have changed the way we deal with the mortgage account fee; (See the section Mortgage account fee on page 10.) we have increased the number of parts (subaccounts) to your mortgage and changed the way we allocate the monthly payments to the parts of your loan where different rates of interest apply. (See the section How will you apply my mortgage payments to these sub-accounts? on page 9.) 5
Why do you quote a monthly payment that is more or less than the amount you have agreed I can pay you? For repayment mortgages, the monthly mortgage payment is the amount you need to pay so that you repay everything you owe by the end of the term we originally agreed with you. For interest-only mortgages the monthly payment pays only the interest charges, and you still need to make a lump sum payment at the end of your mortgage term to pay off everything else you owe. We may have agreed to accept a higher or lower payment than this for a period of time, and we will show your payments on your statement. Paying more than you need to pay will have reduced the amount you owe and therefore the amount of interest we charge. It may also mean you fully repay your mortgage sooner than the date originally agreed. Paying less than you need to pay will have increased the amount you owe and the amount of interest we charge. At the end of the period in which we agreed that you could pay less, we ll need to re-calculate your monthly mortgage payment. The payment will need to increase to ensure you fully repay your mortgage by the end of its term. 6
When we re-calculate your monthly payment Sometimes we may need to adjust your monthly payment so that you fully repay your mortgage by the end of its term. We may do this if, for example: your interest rate changes; we change how we work out interest; you have to pay a new charge or cost; we lend you more money; you switch to or from an interest-only mortgage; re-calculate your monthly payment; or we have allowed a temporary stop or there is a change to your mortgage term; you make an overpayment and ask us to reduction to your monthly payments. We always give you notice when we change your monthly payment. to re-calculate your monthly payment as soon as any other change happens, please ask us to remove you from Budget Plan. Important note for Deedstore customers We will only collect a monthly payment from you if you have an arrangement with us to pay your building and/or contents insurance through your mortgage account. How do you re-calculate my monthly payments? When re-calculating your monthly payments, we look at each sub-account separately and change the monthly payment only on subaccounts affected by the change. This may mean that only some and not all sub-accounts get a monthly payment re-calculation. Also, if two sub-accounts change at the same time, we may send you a separate letter for each sub-account. See Mortgages in different parts sub-accounts on page 9. Important note for customers on our Budget Plan scheme If your mortgage is on our Budget Plan scheme, we ll continue to re-calculate your monthly payment on your next anniversary date, and tell you how much it is when we send your next mortgage statement. The exception to this is if your mortgage product ends. If that happens we will now re-calculate your monthly payment on that part immediately. If you would also like us 7
In the example below the balance of sub-account 99 has increased by 70 because a cost has been added. Adding a cost or charge does not always lead to a re-calculation of your monthly payment. For example Someone has a mortgage with three sub-accounts: Sub-account 1 has a balance of 50,000 on a fixed rate of 5.00% and a monthly payment of 276.91. Sub-account 2 has a balance of 20,000 on a Bank of England tracker variable rate, currently at 4.25%, and a monthly payment of 107.97. Sub-account 99 has a balance of 699 on a fixed rate of 5.00% and a monthly payment of 3.97. The Bank of England announces a 0.25% increase in its bank rate. The three sub-accounts now look like this: Sub-account 1 has a balance of 50,000 on a fixed rate of 5.00% and a monthly payment of 276.91. Sub-account 2 has a balance of 20,000 on a Bank of England tracker variable rate, currently at 4.50%, and a monthly payment of 110.76. Sub-account 99 has a balance of 769 on a fixed rate of 5.00% and a monthly payment of 3.97. Note: We have re-calculated the monthly payment only on sub-account 2, because the interest rate has changed. On sub-account 99 the amount owed has increased but we have not re-calculated the monthly payment because the interest rate has not changed. In re-calculating your monthly payment when we changed the way we manage your account, we have projected the amount you owe including interest charges to the end of the month. We have also assumed that any payments due during the month will be paid. In future, when we re-calculate your monthly payment we will not make an assumption that any payments we have not yet received will be made. This means, for repayment mortgages, we re-calculate your payment based on the amount you owe on the day before we do the re-calculation, together with the projected interest charges to the end of that month. If you have not paid your monthly payment before we perform the re-calculation, the balance on which we ll re-calculate your monthly payment will not take into account the payment that you are expected to make before the month end. 8
Mortgages in different parts sub-accounts How does my account work? Different types of loans can have: Different repayment methods, for example they can be interest-only or repayment. Different types of interest rate, for example fixed or variable. Different mortgage terms, for example 15 or 25 years. Sometimes your loan may be a combination of these and if so, we will split your loan into different parts called sub-accounts. Each sub-account has its own repayment method, interest rate and term. This breakdown of your mortgage will make your account easier to view. How will you apply my monthly payments to these sub-accounts? Each part or sub-account has a separate monthly payment that we total before collecting the full amount from you each month. Each month, when we receive your total monthly payment, we split it and give each sub-account the amount it needs to ensure you repay your interest charges for that month. For repayment sub-accounts, the split also ensures that an amount goes to reduce the loan so that you fully repay it by the end of the term. If you pay more or less than your monthly payment, we will put what you pay towards each part in the same proportions that we apply your full monthly payments to those parts. For example: Someone has a loan with us that has two parts. Let s say their total monthly payment is 400, of which: 100 is the monthly payment on part 1. 300 is the monthly payment on part 2. Scenario A They overpay 100 (on top of their 400 monthly payment). Scenario B They underpay 100 (only paying 300). We calculate what percentage of their total monthly payment is made to each part: Payment on part 1 ( 100) 100 = 25% Total monthly payment ( 400) Payment on part 2 ( 300) 100 = 75% Total monthly payment ( 400) We apply 25 of the overpayment to part 1 (overpayment of 100 25%) = 25. We apply 75 of the overpayment to part 2 (overpayment of 100 75%) = 75. We apply 75 to part 1 (total payment of 300 25%) = 75. We apply 225 to part 2 (total payment of 300 75%) = 225. To find out more about making overpayments, please read the section Regular and lump-sum overpayments on pages 16-19. 9
Mortgage account fee The information here is important to understand if we charged you a mortgage account fee when you first took out your mortgage. If we did not, this information does not apply to you. How do I know if you charged me a mortgage account fee? If we charged you a mortgage account fee when you first took out your mortgage, this will show in sub-account 98 on the table displayed in the letter we sent you which was headed up We ve changed the way we manage your mortgage. What is the mortgage account fee? The mortgage account fee is a charge we make to cover the setting up, routine maintenance and closing down of the mortgage account. We automatically add the fee to an account when the mortgage starts. What is changing? If we charged you a mortgage account fee, our letter explained that we had added to sub-account 98 an amount equivalent to the fee we originally charged. We will not charge any interest on this sub-account for the remaining mortgage term. and interest-free for the life of the mortgage. When the account is closed, we will collect this as part of the total amount to repay. For all other customers, we ll start collecting a monthly payment to repay sub-account 98 over the remaining mortgage term. Our letter shows the amount of the payment for this sub-account. If you have a full interest-only mortgage, we previously did not include the fee in our monthly payment calculations. When the account was closed, we would have collected it as part of the total amount to repay. As you make your payments, the amount you owe on this sub-account and the amount of interest-free loan will now gradually reduce. When we originally made this charge, we told you we would give you an interest-free loan equivalent to the mortgage account fee for the life of the mortgage. Even if you chose to pay the fee, the interest-free loan amount remained on your account until the end of the mortgage term. This meant we did not charge interest on 275 of the amount you owed. If you have a lifetime mortgage, the additional changes below do not apply. This means sub-account 98 will be interest-only 10
The changes we have made mean we will charge you more interest than we originally agreed. So that you are not disadvantaged by this change, we ll refund at least the extra amount of interest you have paid. For example, if we put 275 into sub-account 98 and this is repaid over a remaining term of 10 years, assuming the rest of the mortgage has a rate of interest of 5%, the extra interest charged will be 72.88. When will I get the refund? We will refund you the additional interest charged when you repay everything you owe. 11
Mortgage interest Daily interest We charge interest on everything you owe (until you have paid it off) unless we tell you we are not charging you interest on something. We charge you interest for every day that you owe us anything under our agreement. We start charging interest: we lend it to you; your loan; loan; and on any money we lend you from the day on interest from the day after we add it to on a charge from when we add it to your on a cost from the start of the second month after we add the cost to your loan so that you can avoid interest charges by paying it off before then. Any payment that you make will reduce the balance and therefore the amount of interest you are charged from the day that we receive it. Previously it was the day after we received it. How do you calculate interest? For each month, we look at what you owe at the very start of the month, and then at anything we add to what you owe (such as a charge) or that you pay off (say through a monthly payment) during that month. We then calculate your interest for the month as follows: (what you owe at start of month) (yearly interest rate) (days in the month) PLUS (any added amount) (yearly interest rate) (remaining days in month, including the day of addition) MINUS (any payment) (yearly interest rate) (remaining days in month, including the day of your payment) We then divide that total figure by 365 (366 in a leap year). We do our calculation to four decimal places at each step. We then round up the result to the nearest penny to give you your interest charge for the month. 12
For example Someone owes 100,000 on 1st June, and on 16th June they make a payment of 20,000. Their yearly interest rate is 6%. On that basis, we work out their interest for June as follows. 100,000 6% 30 (being the number of days in June) = 180,000.0000 20,000 6% 15 (being the number of days from 16th to 30th June) = 18,000.0000 180,000.0000 18,000.0000 = 162,000.0000 162,000.0000 365 = 443.8356 Total interest charge for June = 443.84 If you have more than one part (see section Mortgages in different parts ) we will calculate the interest for each part separately. When will you add interest to my account? We ll add the interest for each month to what you owe at the end of the last day of that month. We start charging interest on that interest (often called compound interest ) from the first day of the next month. Annual interest method How do you calculate interest? We charge interest on the amount owing on each sub-account on 1st January until the following 31st December or the repayment date, if this is sooner. We charge it for the number of days at which each interest rate applies during the period. We charge interest on any debit transactions* we make to each sub-account for the number of days at each interest rate that applies until the following 31st December or the repayment date, if this is sooner. *Debit transactions increase what you owe. We calculate interest on certain credit transactions* (such as lump-sum overpayments) we apply to sub-accounts for the number of days at each interest rate that applies until the following 31st December or the repayment date, if this is sooner. We then reduce the amount of interest charged by this amount. *Credit transactions reduce what you owe. If you underpay or overpay your monthly payments, we do not alter the interest we charge at the time you make the under or overpayment. Balances are only adjusted on 1st January. 13
Early repayment charges What are they? We offer different types of mortgage products with different interest rates. With some of these there may be a charge if you repay all or part of your loan within a certain period of time; we call these early repayment charges. Details of any early repayment charges that apply to you, and when they may be charged, are set out in your offer letter. Why do you charge them? When setting up the funds to provide loans to customers, we expect them to keep the money for the time agreed at the outset. There is a cost to us if they repay some or all of the loan sooner. The charge compensates us for this cost. When do you charge them? If you repay the loan on which there is an early repayment charge before the end of the early repayment charge period set out in your offer letter, then we make an early repayment charge. The charge will be based on the amount you owe when you repay the loan, but it will never be more than the maximum charge we set out in your offer letter. If you repay part of the loan on which an early repayment charge applies, we ll charge you a proportion of the early repayment charge due. Example: Amount you owe: 50,000 Percentage early repayment charge payable: 5% Total early repayment charge payable: 2,500 Amount you repay early: 25,000 Total early repayment charge payable: 1,250 We ll also make an early repayment charge if we agree to transfer all or part of your loan to a new mortgage product during the early repayment charge period. 14
Are there any exceptions to this? Yes. Currently, as a concession, in each calendar year you can make regular or lumpsum overpayments of up to 10% of the amount owed at 1st January without having to pay an early repayment charge. In the past, the 12-month period was based on a rolling 12 months and not a calendar year. The change to a calendar year will make it easier for you to keep track of your overpayment allowance. As we have changed the 12-month period part way through a calendar year, to make sure you are not disadvantaged, any overpayments you have already made in 2017 won t count towards the 10% concession. This means between the date we changed the way we manage your account and 31st December 2017 you can make overpayments of up to 10% of the balance shown in each sub-account where an early repayment charge applies. This balance is shown in the table on the letter we sent you when we changed the way we managed your mortgage. The 10% allowance will remain a concession, so please remember this can change at any time. Example under old rules and special arrangements for 2017: Say someone made their first overpayment on 25th June 2016. Then, under old rules, the last day of the 10% overpayment period would be 24th June 2017.* * However, the change to our policy means that the overpayment period starts again on the date we changed the way we manage your account and ends on 31st December 2017. Example under new rules for 2018: First day of 10% overpayment period, 1st January 2018. Last day of 10% overpayment period, 31st December 2018. If the total amount you overpay during the year exceeds 10%, we ll only charge you an early repayment charge on the proportion you overpay above 10%. Example: Amount owed on 1st Jan: 50,000 Total amount of regular/lump-sum overpayments made between 1st Jan and 31st Dec: 10,500 Less the amount of regular/lump-sum overpayments where early repayment charges do not apply (10% of 50,000): 5,000 Total amount of regular/lump-sum overpayments where early repayment charge applied: 5,500 Total early repayment charge payable ( 5,500 5%): 275 15
Where your loan is divided into more than one part (see Mortgages in different parts ), then the concession will apply to the amount owing on each part. If you then repay the loan in full within six months of making a regular or lump-sum overpayment, we ll require you to pay the full early repayment charge, including the portion we previously did not charge you. Remember, we can change or withdraw our 10% early repayment charge concession without notice, so if you decide you want to make regular or lump-sum overpayments, it s always a good idea to contact us and check if the policy has changed. If you are moving home and can take the product with the early repayment charge with you to a new mortgage, you will not have to pay the early repayment charge. Regular and lump-sum overpayments Regular overpayments What are they? Regular overpayments are amounts you pay that are extra to your monthly mortgage payments. They reduce the amount you owe on your mortgage. They also reduce the amount of interest we charge because we calculate interest on the reduced balance from the day we receive the overpayment. If you have a repayment mortgage, overpayments will not reduce your mortgage term. This is because whenever we recalculate your monthly payment, for example at an interest rate change, we set your new monthly payment so that it repays your loan over the term we originally agreed with you. Similarly, if you have an interest-only mortgage, overpayments will not reduce your mortgage term. This is because whenever we re-calculate your monthly payment, we set your new monthly payment so that we collect all the interest you owe by the end of the term. However, overpayments will reduce the amount you owe, so the lump sum you need to repay the loan at the end of the term will be smaller than originally planned. You may want to make regular overpayments to pay off your loan sooner, but don t want to ask us whether you can formally change the term of your mortgage agreement. If so, you will need to remember to review the amount 16
of the monthly payment whenever we re-calculate it and increase the amount of your regular overpayment. If your mortgage is on our annual interest method, making regular overpayments may not be right for you because we have removed our credit interest concession. There is no adjustment of interest in respect of either regular monthly payments or overpayments. For further information, please see Annual Interest on page 13. If your mortgage is on our annual interest method and you would like to change to our daily interest method, please contact us. How do I make regular overpayments? If you would like to set up an overpayment by Direct Debit, please call us on 0345 725 3253. To set up an additional payment by standing order you ll need to contact your own bank or building society to authorise the payment and provide them with the following details: Will there be a charge for making a regular overpayment? You may have to pay an early repayment charge if you are making an overpayment during an early repayment charge period. Your offer letter will tell you if early repayment charges apply and how long for. Your annual statement will also tell you this. If there is an early repayment charge concession when you make your overpayment, you will have to pay an early repayment charge on only the part of the overpayment that exceeds the concessionary limit (see Early repayment charges ). Bear in mind that if you have made any lumpsum overpayments during the year, these also count towards your 10% early repayment charge concession. Sort Code: 30-00-00 Account Number: 00332275 Reference Number: Your new 14 digit mortgage account number followed by 00. If you want the payment to go to a specific sub-account replace 00 with the 2 digit sub-account number you want the payment to go to. For example, replace 00 with 01 to pay the amount to sub-account 1. 17
Lump-sum overpayments What are they? Lump-sum overpayments are when you pay off part of your loan using a one-off payment. How do I make one? If you would like to set up an overpayment by Direct Debit, please call us on 0345 725 3253. To set up an additional payment by standing order you ll need to contact your own bank or building society to authorise the payment and provide them with the following details: Sort Code: 30-00-00 Account Number: 00332275 Reference Number: Your new 14 digit mortgage account number followed by 00. If you want the payment to go to a specific sub-account replace 00 with the 2 digit sub-account number you want the payment to go to. For example, replace 00 with 01 to pay the amount to sub-account 1. Alternatively, you can write to us enclosing a cheque. You need to tell us if you want us to use the money to reduce the monthly payments by keeping the mortgage term the same. If you would like to permanently reduce the remaining mortgage term, you will need to speak to a qualified mortgage adviser who will discuss your needs and circumstances with you. If you have an interest-only mortgage, you can ask us to reduce the mortgage term but only if you can show us that your repayment plan(s) to repay your loan at the end of the term will provide enough money to do so sooner. Making a lump-sum overpayment will reduce the amount of interest you will pay us over the life of the mortgage because you are reducing the amount you owe. We ll stop charging you interest on the amount of the lump-sum overpayment on the day we receive the money. Will there be a charge for making a lump-sum overpayment? You may have to pay an early repayment charge if you are making a lump-sum overpayment during an early repayment charge period. Your offer letter will tell you if early repayment charges apply and how long for. Your annual statement will also tell you this. If there is an early repayment charge concession when you make your lump-sum overpayment, you will have to pay an early repayment charge on only the part of the lump sum that exceeds the concessionary limit (see Early repayment charges ). Remember: if you have made regular overpayments during the year, these also count towards any early repayment charge concession limit. 18
Can I choose which part of my loan I repay? Yes. You can tell us which part of your loan you want us to repay with your lump-sum. For example, you may want us to reduce the part that is charged the highest interest rate, or the part that does not have an early repayment charge on it. If you don t tell us which part of your loan you want to repay, we will reduce each part of your loan in the same proportions as we apply your monthly payments. Example The total monthly payment is 600 and is split into two parts: Part 1 is for 360 (60% of the monthly payment) Part 2 is for 240 (40% of the monthly payment) You make a lump-sum overpayment of 10,000 Part 1 would receive 6,000 (60% of the lump-sum) Part 2 would receive 4,000 (40% of the lump-sum) Underpayments What are they? An underpayment is where you pay us less than your monthly payment. You are not allowed to make underpayments unless you have already made overpayments. Whenever we re-calculate your monthly mortgage payment, we use any overpayments you have made to reduce what you owe. Once we have done this, you will need to build up new overpayments before you can underpay again. If I want to underpay, do I have to make arrangements with you? Yes. You should contact us to arrange to underpay so that we can tell you the amount of overpayments available for you to use. We can then change your Direct Debit for the time you want to underpay. 19
Mortgage statements We send you a mortgage statement each year on the anniversary of the month you took out your mortgage with us. It gives important details about your mortgage such as: how much you owe; what interest rate(s) you pay; whether you have a repayment mortgage, an interest-only mortgage or a combination of the two; month; how much interest we have charged; what your monthly payment was for each the payments you made each month; any additional borrowing you took out; any additional charges or costs we added to your loan, for example insurance premiums. Will I continue to get two statements a year? No. You will get your next mortgage statement in your usual anniversary month. This will cover the period from the date of your interim statement to your usual anniversary date. Future statements will then cover a 12-month period and we ll continue to issue them each anniversary date until you repay your mortgage in full. Because we have changed the way we manage your mortgage, we have sent you an interim mortgage statement. This gives all the information your annual statement provides but shows only the transactions between your last annual statement date and the day we changed the way we manage your mortgage. 20
Section 2 How we used to manage your account You only need to read this section if you want to understand how your account was managed before we made changes to it. Section 1 tells you how your mortgage works now. Mortgage interest How we calculated interest on your mortgage depended on whether your mortgage was on our daily interest or annual interest method. Please refer to the Repayment Type section of your interim mortgage statement to see which method applied to you. We charged interest on everything you owed (until you paid it off) and for every day you owed it, unless we told you otherwise. We started charging interest: lent it to you on any money we lent you from the day we on any charge or cost from the day after we added it to your loan. Daily interest method How did you calculate interest? We charged interest on the amount you owed at the start of the month until there was a transaction in the month. The transaction increased or decreased the balance on which we charged interest until the month end or the next transaction, whichever happened sooner. We repeated this step for each new transaction until the month end. At the month end, we added the interest that had built up during the month to the balance. This created the new balance for the start of the next month. So the way we calculated this interest was: (what you owed at start of month) (yearly interest rate) (days in the month or days until the next transaction) number of days in the year PLUS (what you owed at start of month, adjusted by the transaction amount) (yearly interest rate) (days in the month until the next transaction or the end of the month) number of days in the year. Note: We repeated this step for each transaction during the month. 21
For example Someone owed 100,000 on 1st June, and on 16th June they made a payment of 20,000. Their yearly interest rate was 6%. On that basis, we worked out the interest for June as follows. 100,000 6.00% 16 (days in June until the payment was made) days in year = 263.01 80,000 6.00% 14 (days from 17th to 30th June) days in year = 184.11 Total interest charge for June = 447.12 We calculated interest daily and added it to your balance (for calculation purposes) at the end of each month. We showed it on your annual mortgage statement as one total amount on 31st December. Page 12 How do you calculate interest? explains how this works now. Annual interest method How did you calculate interest? We charged interest on the amount owing on 1st January until the following 31st December, or the final repayment date, if this was sooner. Interest was for the number of days at which each interest rate applied during the period. We charged interest on debit transactions. For example, if you borrowed more, we charged interest for the number of days at each interest rate that applied until the following 31st December or the repayment date, if this was sooner. Interest was calculated on certain credit transactions for example, a lump-sum overpayment, for the number of days at each interest rate that applied until the following 31st December or the repayment date, if this was sooner. We then reduced the interest we would have charged by the calculated amount. We did not adjust the interest for any monthly payments you made but we did apply credit interest on any: monthly payments due regular overpayment of 250 or more in a specific month, provided you had paid all regular overpayment, however small, that was used specifically to reduce the balance in part 4*, for example, the payment of an insurance premium or charge. (*See Mortgages in different parts on page 23.) We added the interest to your account at the end of the day on 31st December. We then start charging you interest on that interest (often called compound interest ) from the first day of the next month. Page 13 How do you calculate interest? explains how this works now 22
Mortgages in different parts In the past, we may have split your account into up to four parts: Part 1 contained your original loan. Part 2 and part 3 held any further loans you took out after the main loan. Some further lending may have been eligible for MIRAS (mortgage interest relief at source) if you took out the loan before 6th April 2000. Part 4 contained any fees we added to your loan, for example product fees. We did not apply interest rates and the method of repayment (interest-only, repayment or a combination of the two) to the individual parts. Instead, we applied these across each part in the order of part 1, 2, 3 and 4. Changes in the mortgage balance could alter the interest rate and repayment method we applied to each part. This was so that: if the total amount you owed exceeded the total value of any repayment plan(s) you were using on an interest-only mortgage, we treated the excess as a repayment mortgage so that you would repay it in full by the end of the mortgage term, and if you chose a fixed or variable rate product, you kept as much as possible of the amount you originally borrowed at this rate until the product rate period ended. For example Someone had a loan with us which had three parts: Part 1 (original loan) 50,000 Part 3 (a further loan) 10,000 Part 4 (a fee loan) 400 The loan is held partly as interest-only and there are repayment plan(s) with a value of 55,000. The customer has three mortgage products/ interest rates: A fixed rate of 4.99% for 55,000. A variable tracker rate of 3.00% for 5,200. Our standard variable rate of 3.99% for any remaining amount owed. Part 1 would work like this: 50,000 would be on an interest-only basis at a fixed rate of 4.99%. This is the product rate. Part 3 would work like this: 5,000 would be on interest-only at a fixed rate of 4.99%, and 5,000 would be on repayment at a variable tracker rate of 3.00%. Part 4 would work like this: 200 would be on repayment at a variable tracker rate of 3.00%. 200 would be on repayment at our standard variable rate of 3.99%. 23
You will see in the example on the previous page, that there is a mixture of different types of products at different interest rates. Different types of products were also applied in a certain order which was: Staff concessional rates Fixed rates Capped rates Mortgage account fee (see page 25) Tracker rates and discounted rates (variable) Lender variable rates, for example, our Standard variable rate. If there was more than one of these products held on an account, then the ordering in which these were applied was alphabetic and numeric based on the product code descriptions that you could see in your annual statement. This would mean that if: You had not paid all the amounts due during the year (you had underpaid ), then the parts would be left with a shortfall of payments in the following order: 4, 3, 2 and 1 You had paid more than was due (you had overpaid ), then we would apply these overpayments in the same order as underpayments: 4, 3, 2 and 1. We did this to clear underpayments before using any money to reduce any of the other parts. Remember, you would not see this on your annual statement. We showed everything as one total amount owed. Page 9 Mortgages in different parts subaccounts explains how this works now. We did not show the different parts on your annual statement; we always combined them to show you everything you owed as one total amount. How did you apply my monthly payments to these parts? We applied your monthly payments in the following way: First we applied all the interest charges to each part in the order of part(s) 1, 2, 3 and 4. Then we applied any capital due for each part in the same order. 24
Mortgage account fee How do I know if you charged me a mortgage account fee? If we charged you a mortgage account fee when you first took out your mortgage, this will show in sub-account 98 in the letter we sent when we changed the way we manage your account. What is the mortgage account fee? The mortgage account fee is a charge to cover the setting up, routine maintenance and closing down of the account. We automatically added the fee to an account when the mortgage started. If we charged you this fee, we gave you a 0.00% fixed rate product for the value of the fee for the life of your mortgage. Even if you chose to pay the fee, the interest-free product stayed on your account until the end of the mortgage term. This meant that an amount equivalent to the fee would always be interest free, even if we set this amount against a different part of your mortgage. See Mortgages in different parts on page 23. If you had a full interest-only mortgage, we would have collected the fee as part of the total amount to repay when the account was closed. With other types of mortgage, we included the fee in your monthly payment so that it would be repaid over the life of your mortgage. Page 10 Mortgage account fee explains how this works now. Monthly payment re-calculations How did you re-calculate my monthly payments? When we re-calculated your monthly payments we: whole of your mortgage calculated a new monthly payment for the predicted the amount you would owe at the end of the month before the effective date of the change. If you hadn t made your monthly payment when we did the re-calculation, we assumed you would do so before the end of the month. In addition, we re-calculated your monthly payment even if all your mortgage was on a fixed rate of interest. We did this to ensure that if the amount you had borrowed had changed say because we had added a new charge or cost or you had made underpayments or overpayments then you would still be on track to repay everything you owed by the end of the mortgage term. We then wrote to tell you what your new future total monthly payment would be. Page 7 How do you re-calculate my monthly payments? explains how this works now. 25
Regular and lump-sum overpayments Regular overpayments How could I make them? In the past, there were a number of ways you could overpay: By sending us a cheque through the post. from your bank or building society account. By rounding up your monthly payment to By making an extra standing order payment the nearest 1, 5, 10, 20, 50 or 100. Rounding up your monthly payment is no longer possible but you can call us and arrange to overpay each month by a fixed amount. Lump-sum overpayments What happened if I made one? If you did not say what you wanted us to use your payment for, we applied it to your account as an extra monthly payment. See How did you apply my monthly payments to these parts? on page 24. If you do not tell us what you want us to use your payment for page 19 Can I choose which part of my loan I repay? explains how this works now. Early repayment charges We based the charge on a percentage of the loan originally borrowed at the product rate. We now base the charge on a percentage of the amount being repaid off each part (sub-account). 26
Do you need extra help? If you d like this in Braille, large print, audio CD or another format please call us on 0345 725 3253 (lines are open Monday to Friday 8am to 8pm and Saturday 9am to 4pm). If you have a hearing or speech impairment you can contact us using the Next Generation Text (NGT) Service or via Textphone on 0345 732 3436 (lines are open seven days a week, 9am to 5.30pm). Our promise Our promise is to do our best to resolve any problem you have immediately. Where we can t, we ll ensure you know who is dealing with your complaint. To complain: Call us on 0800 072 9779 or 0113 366 0167. (Textphone 0800 389 1286 or 0113 366 0141, if you have a hearing impairment). Write to us at The Mortgage Business, PO Box 761, Leeds LS1 9JF. If you re still not happy and we can t put things right to your satisfaction, you can ask the Financial Ombudsman Service to look at your complaint - provided you have tried to resolve the matter directly with us first. We hope you won t need to contact the Financial Ombudsman Service but if you do, we ll tell you how to do this. Telephone calls may be monitored or recorded. All the information in this brochure was correct as at July 2017. The Mortgage Business plc. Registered Office: Trinity Road, Halifax HX1 2RG. Registered in England and Wales No. 1997277. Authorised and regulated by the Financial Conduct Authority. Financial Services Register number 304154. 1/3370495-3 (07/17)