by Paul McBeth
Brown says some banks responded quickly to the problems their customers faced when interest rates were moving rapidly and it was difficult to get a firm figure to budget on for early repayment costs. The banks either offered to convert the loan to a floating rate loan at the date of the enquiry, so fixing the cost at that date, or agreed to hold the cost for a period immediately before settlement.
Gripes about fixed rate loans and about mortgage lending in general still dominated the list of new complaints received by the Banking Ombudsman's office this year. In her latest annual report, Brown says there's nothing wrong with banks charging penalties on fixed rate loans to recover the cost of early repayment.
However, she's concerned about cases where bank customers claimed they'd been given faulty information about their potential liability for these costs.
Customers either said they were :
Sample cases given out with the report included two that weren't upheld, titled "The importance of understanding the documents you sign". Brown said she received a number of complaints from customers with fixed rate loans who accepted that they had to pay costs of any early repayment but didn't see the arrangements they asked their banks to make as amounting to early repayments.
In one case, a customer said he didn't want to repay his loan but to "restructure" it (to take advantage of lower interest rates). He argued that, at the end of this restructuring, he would owe the bank precisely the same amount of principal and couldn't be said to have repaid the loan.
Another customer asked his bank to change the rate on his loan from fixed to floating, believing that a clause in his mortgage document gave him the right to do this without a penalty.
However, Brown said that both complainants seemed to have failed to understand that, by entering into a loan agreement that specified a fixed interest rate for a term, they were binding themselves to an agreement to continue paying interest at that rate until the end of the term.
Paul is a staff writer for Good Returns based in Wellington.
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