We got our mortgage statement recently. We thought they'd made a mistake. It showed we only owed a relatively smallish amount of money, in comparison to the relatively huge-ish amount we used to owe. How time flies when you've got a mill-stone around your neck. We looked at each other and said "Blimey, shall we pay it off and be done with it? We could save ourselves a fortune in interest". This would however involve raiding the piggy bank, big-time, living on curried dust and wearing our children's cast-offs but we'd both read in the financial papers that the best way to survive the current hideous financial turmoil is to pay off as much debt as possible, spend as little as possible and avoid paying anyone any interest if at all possible. It seemed like maybe this was a Good Plan.
"Hello, we'd like to talk about paying off our mortgage" we told the advisor at the bank. We waited for a fanfare, fireworks or a twenty-one gun salute. We'd even have settled for a round of applause. I thought they'd be thrilled to get some money back in their coffers in view of the current financial climate, but no, nothing. In fact, if anything, she looked very unimpressed. "In one go, completely, totally finished" I added, just in case she hadn't understood. She sighed.
"Yes, you could do that" she said, "but it'll cost you about £400 in penalty fees for ending your mortgage early and £50 for us to send you your deeds." Fifty pounds to send us a few papers?? I wondered where on earth they were getting their stamps.
"Oh, that seems a bit mean doesn't it" I attempted a bit of light-hearted humour, "the bank charging us to give them their money back to them? What about if we just let the mortgage run on, and continue to overpay, how much interest would we be charged until the end of the term?"
There was frantic jabbing at the calculator. "About £400 give or take a few pounds. And of course £50 to send back your deeds."
"So, let's get this straight. If we give you back several thousand pounds of the bank's money, they'll charge us £400 for doing it. If we don't give it back all in one go, and continue monthly payments, you'll charge us £400 in interest for doing that."
"Yes," she said "that's correct."
Undaunted, we tried a different approach.
"Could we change to a different mortgage then, with a lower interest rate?"
She nodded. "You could, but there is an arrangement fee for changing to a different mortgage product."
We were ahead of her here. "And how much is that fee?"
Yes, you guessed, it was £400.
So in summary, if you pay the bank back, it costs you money. If you keep the loan going, it costs you money. If you try and overpay to finish it off a little bit early, it costs you money. And if you try to save yourself a bit of interest by switching to a lower rate "mortgage product", it'll still cost you money. And don't forget, when they've finally wrung out all of the money you think they're going to get from you, the first edition Penny Black stamp they buy from Sotheby's to post your deeds to you will cost you the rip-off sum of £50.
Banks, eh? Just institutions whose mission in life is to find as many different positions as possible from which to screw you, whilst at the same time pleading poverty because they've all paid themselves too much in bonuses for pissing your money down the drain.
No wonder we're all over a barrel.