From: Ronald Raygun 
Subject: Re: Mortgage Endowment Compensation Offer
Newsgroups: uk.finance
Date: Fri, 16 Jul 2004 17:33:24 GMT

Jack wrote:

> 
> "Jack"  wrote in message
> news:40f6642e$0$6447$cc9e4d1f@news-text.dial.pipex.com...
>>
> 
> Ok Here's the figures and my rationale.
> 
> I have done some very slight rounding - so as not to give exact figures
> for confidentiality.
> 
> Loss calculation
> 1.Capital repaid(RM) £17,900
> 2.Surrender value    £13,000
> 1-2                        £4,900

Ah!  But what we really need is the calculation of (1).  How did
they arrive at their reckoning that £17,900 would have been paid off
had you gone for RM?  Do you accept or challenge this figure?

> Outgoings
> 3.EM £62,920
> 4.RM £64,840
> 3-4 (£1,920)

Is (3) just the interest payments or does it include the endowment
premiums?

> They state it is their policy not to include (3-4) in the calculation,
> therefore the amount payable is £17,900.

How generous of them.

> My mortgage was for £45,100 taken out in sept 88. My EP is £57.40 p/m.
> 
> The issue may be slightly complicated by (I don't know) the fact in the
> last couple of years I have taken advantage of a couple of discounts in
> the interest rates from the lender, so I am not currently paying the SVR,
> but lets ignore this.
> 
> Anyway, whats the SVR now? 6.59%
> 
> This would make my premium around £250.00 on £45,100 I think, giving an
> outlay of £307.40. After compensation the oustanding capital is
> 45,100-17,900=27,200.

OK, £27200 at 6.59% over 9 years gives £334.55 per month.

> Looking on Alliance and Leicesters site the nearest quote (to the SVR) I
> got on the above loan over 9 years was
> 
> Monthly Repayment: £330.21Interest Rate: 5.79%

I make it £323.74, but never mind.

> So on SVR I'm not sure how much extra I must pay, but I have the figures
> for 5.79% so I will work on that basis.
> 
> 5.79% on my original loan gives an outlay of approx £218.00+£57.40=£275.40
> 
> Now, remember they state that the compensation should place me in the same
> position as if I had taken out a repayment at the outset. Using A&L a 25
> year RM is
> 
> Internet Feesaver 5 Yr Fixed Rate 31.08.09
> Monthly Repayment: £288.16Interest Rate: 5.79%

I make it £284.82.

> (Which as I said in an earlier post is very similar to the total outlay
> for the RM when I tok out the mortgage).
> 
> So to place me in the same position I should have to pay a maximum of
> £288.16 for the remaining years and preferably £275.40.

No.  That is not what's meant by placing you in the same position.
What it means is that if you had been on RM from the start, then
there is a certain figure which emerges from the fancy calculation,
which gives you a result along the lines of (1) above, i.e. how much
would you have paid off.  If you would have paid off £17900, then
that's what you should get to put you in the same position.

In fact it is likely that the effective average interest rate over
those 16 years was rather more than the 5.79% you're working with.
Indeed, had it been 5.79%, you would have paid off £21170.  Had it
been 6.59%, you'd have paid off £20135.  To have paid off £17900, the
interest rate would have had to average about 8.71%.  If you cannot
challenge that, then you cannot disagree that your account balance
at this point would be £27200, and that to be put in the same position,
that amount is what they should help you reduce your debt to.

Consider also that, had your initial interest rate been 8.71%, your
monthly payments would have been a whopping £369.56.

The only way you can argue for more is to argue that £17900 is *less*
than you would have paid off.  The on ly way you can do that is to
dig out your actual interest rate history for the entire 16 years.