Complaints continue on fixed rate loans
Hassles over the repayment costs on fixed interest loans are still causing the Banking Ombudsman's Office a considerable headache.
Sunday, May 2nd 1999, 12:00AM
by Paul McBeth
Ombudsman Liz Brown told Good Returns that quite a few complaints came from people "who knew perfectly well about the repayment costs: they could and should have gone into it with their eyes open."
"But there are a couple of categories (of complaint) that take a bit more investigation," she says.
"People were either never advised or they were poorly advised.
"It all really boils down to giving people the information they need."
Brown says that some bank customers were poorly advised about taking out this type of loan in the first place and that, when they first became popular, there is some evidence that bank staff were not well trained in advising people about the loans. She's even aware of a bank manager who advised a couple to switch to a fixed rate loan even though he knew their property was on the market.
Another problem area for bank customers has been where the cost of breaking a fixed rate loan is calculated on the loss to the bank rather than as a set amount.
"When rates are falling, that can be fluctuating quite wildly from day to day. In one case, a bank advised a customer that the penalty would be $200 to $300 and then it eventually ran into the thousands three or four weeks later." see Fixed rate loans explained
In her latest newsletter, Brown says the number of complaints made to her office has increased very considerably in the past six months. There was also a sharply higher number of complaints - up 80 per cent - that the Banking Ombudsman's Office has had to go on and investigate.
Brown says the main reasons for the larger number of investigations are delays in some banks' internal complaints procedures plus a tendency to declare an issue deadlocked and refer it to her "when a little more time and effort would have seen the complaint resolved".
The Banking Ombudsman scheme has been operating since July 1992. A free service, it provides an independent and impartial arbitrator of unresolved disputes about the provision of banking services. For the year to June 30 1998, mortgages made up the largest single category of complaints to the Banking Ombudsman's Office (17% of all complaints) and 22% of those complaints that needed to be investigated.
Fixed rate loans explained
These are loans with an interest rate that is fixed for a set period, commonly for one, two or three years (although some lenders offer terms as short as six months and as long as seven years). At the end of that period, you can take out another fixed rate loan or change to a floating (variable interest) rate loan.
The mortgage lender comes up with the money for your loan by borrowing itself - at a fixed rate and for the same set period. It is stuck with that amount of borrowing, so it has to charge you for repaying your loan early so it's not out of pocket.
If you take out a fixed rate loan, make sure you understand exactly how you'll be charged if you want to repay all or part of the loan early. Some lenders charge a set amount (for example, between one and three months of penalty interest). Some lenders base the penalty on the actual cost to them of your breaking the loan: that can depend on how far through the loan you are and the current level of interest rates.