Home insurance and mortgages

[Valerie Campbell]

When we moved we took out a mortgage with one of the big lenders. A few months down the line, I noticed that the home insurance wasn't coming out our bank account. I had a good look through all our paperwork and to my horror found that the lender had put the insurance onto the mortgage account. Usually, we'd paid via direct debit on a monthly basis. At no point did we ask for it to go onto that account, nor were we made aware that it was going to be added during the meeting with the bank involved. Needless to say we didn't renew our insurance with them this year when it came up for renewal. But we have another 24 years to pay interest on this. Just double check your mortgage statements if you have done this. If you get your insurance added to your mortgage one year, then it's renewed the next and subsequent years, how will it all be paid off with the interest accumulated on it in the lifetime of the mortgage?

[rockchick]

Isn't the home insurance a separate charge that is added onto your mortgage payment? So if your mortgage was £500, and your insurance was £40, then your monthly payment would be £540...the insurance doesn't affect your mortgage payment or interest at all.

Unless you have a different kind of mortgage? I'm thinking of a traditional Principal & Interest-type mortgage, as that is the only type I have experience with.

[Valerie Campbell]

The mortgage is a traditional capital and interest repayment mortgage and on the statement it says the insurance is part of it. I also have a oneliner in a letter which says it was added to the mortgage account, without our consent, not as a seperate thing. If it had been seperate I wouldn't be grumbling about it because it would have been paid over that year instead of the lifetime of the mortgage. Guess you live and learn...

[Margaret M.]

Adding the insurance premium to the mortgage and charging interest on it just does not seem legal. Are you sure it is not coming from an escrow account funded through your mortgage payment?

[j4bberw0ck]

All mortgages have a clause that says you must keep the building insured for a minimum amount (whatever the Valuer specified when you bought the house or last remortgaged). If you don't, the lender has the right in law to insure the buildings and add the premiums to the mortgage, where they'll be charged interest.

Some lenders charge a one-off fee (usually £25) if you don't insure the building through them. If you refuse to pay it, they can add the £25 to the mortgage.

If you don't give them your insurance details they'll assume you're not insured and they'll insure it and add the premiums etc etc......

If you were legitimately insured for the period they double-insured you, and had given them the details, and paid any fee that was due, then you should be entitled to a refund of premiums debited to your mortgage and a correction of the interest calculations. If your lender won't cooperate, then you should tell them to regard your complaint as formal under the Financial Services Authority rules. If they still don't play ball complain to the Financial Services Ombudsman. They're legally obliged to give you the details of how to contact the Ombudsman.

It's not unreasonable that the lender insures your house if you don't give details or don't insure (and note I'm not suggesting that's what happened here!) as they have to protect their own interests. It is unreasonable if they won't refund something they've wrongly charged. Good luck.

[gollach]

Some lenders charge a one-off fee (usually £25) if you don't insure the building through them.

I've met this before too. Luckily, the company I did insure through said that they would pay any fee up to £30 imposed by my mortgage provider so that I didn't end up out of pocket.

That was 10 years ago, don't know if insurers still do this?

[j4bberw0ck]

Some do. Especially the internet providers but if you're buying from them be EXTREMELY careful what you're getting. They're not cheaper for nothing, and it's nothing to do with what they'd have you believe. :eek:

[Valerie Campbell]

J4bberw0ck, thanks for the info. I will write to them and see what they say. We gave them the information from the survey so the house was insured by them on that basis for both buildings and contents.

Margaret M, it's not coming from and escrow account. The mortgage statement and the letter I found confirm it was added to the mortgage. We were charged the £499 arrangement fee, which we knew was going to be added to the mortgage, and £490 for the insurance, which we didn't ask to be added to it.