Getting into a fix

By THIS IS MONEY
Updated:

 

I have recently taken a 25-year repayment mortgage with a 10-year fixed rate. In the first month, the mortgage lender did not collect any capital, only interest. As a result they added this amount of capital to the mortgage loan at the variable rate. Is this legal or has the mortgage lender mis-sold a fixed rate product? TB, Bristol.

David Hollingworth from mortgage brokers London & Country says: 'This sounds highly unusual. Ask your lender exactly what has happened as soon as possible. Normally there should not be a need to capitalise any

amount, as the lender should request the correct payment from your bank by direct debit. This means that you should not find yourself in a situation where an amount is on the variable rate.

One possible reason is that a fee such as a higher lending charge (sometimes known as MIG and charged because you have borrowed a high percentage of the property value) has been incurred. Lenders often allow this to be added to the loan but this may be put on the standard variable rate rather than the product rate. This could explain why there is a small element of the mortgage on the variable rate.

Contact the lender without delay - it is better to solve any problem, if there is one, sooner rather than later.

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