What your partner doesn't know....
The Banking Ombudsman deals with many complaints about mortgage finance each year. Ann Cunninghame looks at some of the complaints and shows you what you want to avoid.
Sunday, January 21st 2001, 10:31PM
by Paul McBeth
Just one mistake after another
This couple got a housing loan from the bank and then borrowed a bit more. However, the bank made an error and set the interest rate at zero per cent for the whole amount borrowed: it automatically recalculated the weekly loan repayments and reduced them by about half.
The couple noticed that their principal was reducing very quickly. When they queried this with the bank, they were told that the loan would be repaid in seven years. As they only wanted to repay the minimum, they reduced their repayments further to repay the loan in 12 years.
They then spent the extra money which they weren't using to repay the mortgage and decided to borrow still more. At that point, the bank noticed its error, worked out the interest which hadn't been paid and added this to the couple's loan principal.
The bank then documented all three amounts borrowed into one new loan for 25 years, with a fixed interest rate for two years. However, the couple wasn't happy with this and called in Banking Ombudsman Liz Brown.
She then had to balance the pros and cons for the couple. On one hand, they'd had the extra funds while they were making lower repayments, plus the bank's suggested interest rate worked out slightly in their favour. On the other hand, they faced a substantial cost as the bank had added an amount equal to their missed interest payments to the loan principal, meaning they'd have to pay interest on this amount for the 25-year term of the loan.
In the end, Brown said that the bank should pay the couple an extra sum towards their direct loss as well as restructuring the loan as suggested.
What your husband doesn't know....
Banks lending to one spouse/partner on the security of the family home without the other person's knowledge or consent? Yes, it does happen.
Brown said that, while the office doesn't get a large number of such complaints, "they are often particularly distressing and can involve large sums of money".
In one case, a woman was able to get further loan advances without her husband knowing by taking the loan agreement home, forging his signature and then returning the "signed" agreement to the bank. That bank said it was standard practice to let borrowers take documents home for signing by co-borrowers.
Brown said that five banks replied to a survey her office carried out and, while opinions varied, most banks didn't generally approve the practice of allowing loan documents to be executed outside the branch. She felt that it wasn't good banking practice to make initial or further advances against the security of a joint family home unless the bank had confirmed that both owners were aware of the proposed loan.
To read the first part in this series click herePaul is a staff writer for Good Returns based in Wellington.
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