Mortgage/Remortgage

I’m hoping there are some folks that can help me understand something that has been bugging me…

Say I have a mortgage of 100k, and plan to change lenders after 3 years. For those three years, my mortgage payments will mostly be going towards paying off the interest, and at the end of it I will probably have only paid off a couple of grand from the loan.

It is my understanding that were I to stay with one lender for the full 25 years, I would only really start paying off the loan value towards the end of those 25 years, after I have paid off most of the interest.

So, how does that work if I remortgage? Do I not just end up paying loads more interest in the long run, because my remortage is for 98k, and I go right back to the bottom of the curve on the interest:loan ratio of payments?

And does this not repeat itself every three years, when I remortgage?

I must be missing something here, because you’d never get a mortgage paid off otherwise. Buggered if I can work it out though.

When you remortgage you don’t remortgage for 25 years…you remortgage for the shorter duration i.e. 22 years.

So you’ve got the same mortgage amount over the same period even after remortgaging…but hopefully on a better rate.

Do you want me to send you a spreadsheet that breaks everything down for you? Show’s how capital repayment v interest works – and lots more too.

mudshark, could you please send it to me as well. I’d be very interested.

Sent – change the values in dark yellow to suit you.

+1 please Mudshark….! 😆

You mail address isn’t in your profile so let me know.

Is your mortgage interest only or repayment? Sounds like repayment.. which means that your payments comprise, part the loan, and part the interest on that loan. Obviously as you say in the early days of a loan, the proportion of interest you pay is higher cause the loan value is higher. However, if you are on a repayment then you are effectively paying off your loan from day one – not as you are suggesting towards the end of the term. If you are switching to get better interest rates then, no, you won’t be paying more interest – assuming you continue to reduce your loan, and not borrow more. Also as above – the mortgage term you choose will affect payments – shorter term, higher payments. Have a play with this calculator to see how the different variations affect your payments http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml

In the long term the best thing you can do (if you are able) is overpay. This will dramatically reduce the amount you pay in interest and the overall term that your mortgage runs. Handy calculator here http://www.lcplc.co.uk/calculators/effect-of-overpayments/ [insert disclaimer … I am no expert, so feel free to ignore me …] 🙂

edit – or just let mudshark help you!

Mudshark, yes please!
dont_jump_jimiATyahoo.co.uk
Thank you.

I understood the repayment over a shorter time bit, but it still didn’t totally make sense (i.e. why in that case wouldn’t you just take the original mortgage out for that shorter amount of time and skip all that extra interest that you have paid?)

I’m glad I’m not the only one that wants to know about this!

+1 Mudshark. Can you send to me too pls? Tarp.

Thanks ART.
I won’t ignore you, you appear to know much more than I.

I just seem to remember being told that the lenders like to rake back most of the interest in the early days. I must have not quite grasped that properly.

why in that case wouldn’t you just take the original mortgage out for that shorter amount of time and skip all that extra interest that you have paid?

Paying off 100k in 12 months may prove to be a chalange for some!

danj DOT heywood AT gmail DOT com

Thanks

I created the spreadsheet when I realised how little people understand personal finance – even some of the people at lenders who were supposed to know this stuff. Not found anything on the web to match it.

BTW, I went to school with Martin Lewis so you can trust me 😉

I’d like a copy of that too mudshark if you don’t mind – sounds very handy. Will mail you from my work account as can’t get the one in my profile from here.

Cheers Mudshark.

That’s a funky tool.

Looks like the total 25yr payback is easily 40-60% over LV depending on your int rate. Nice. Good to know someone’s doing alright out of this.

Mudshark – Thanks much, cracking spreadsheet.

It suggests that I am paying off more of the loan each month than I remember having paid off through experience. My memory is poor though.

Is there a standard ratio of loan/interest that gets paid off each month for all lenders? And does that ratio stay the same for the duration?

Thanks again.

I created the 1st version many years ago and compared with Nationwide’s figures at the time. In theory any lender that calculates interest daily should have the same figures.

Could you send me a copy too please Mudshark – m(dot)danford@mixd.co.uk

Many thanks.

Yes please Mudshark! ewan at ewanpanter dot co dot uk

Thanks!

http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator is really good.

Handily it can back-calculate your current interest rate from your monthly repayment, which is good when your provider doesn’t state it on your mortgage account (Oi, Standard Life, sort it out!)

what is this mortgage thing you speak of?

Sorry to divert the thread a little, but on a similar subject: Is it generally possible to transfer one’s existing mortgage (i.e. low SVR, 21 years remaining) with the same lender on to a different property? Or does it just depend on the lender and the mortgage? If so, would they be likely to allow me to borrow more? Or would I be more likely to have to get a whole new product when I move?

Mudshark, could you send me a copy of the spreadsheet too please, to track(AT)numbertwenty.plus.com.

Currently got a very low interest rate (more by accident than design) and overpaying my mortgage, so would be interested to find out how this affects the term I will be paying this over. Hopefully your spreadsheet can help with this.

To understand how the interest/capital thing works (as in the OP’s 1st question) google “rule of 78”. It all becomes clear…

would be interested to find out how this affects the term I will be paying this over

http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

wooobob – yes as long as the new property passes the mortgage company’s survey and the LTV is OK.

Cheers cheers_drive 🙂

I just seem to remember being told that the lenders like to rake back most of the interest in the early days. I must have not quite grasped that properly.

Interest is worked out monthly or daily or something. However your payments stay the same through out the mortgage. As the amount to pay back is large to begin with it appears you are paying more interest to begin with.

You could level this off by paying less later, but the mortgage would take longer to pay off. Or by paying more to begin with, but where do you get the money from ?

Another thing to be said is that even if you only paid the interest each month, in 10 years the £100k in real terms would be less money (assuming we have inflation and your salary also inflates).

Mudshark (or anyone that has been sent it) please can you forward to me! Thanks (email address in profile)

Sorry Mudshark but if you could find time to send it to someone else, address in profile. Many thanks in advance.

scu98rkr that’s exactly the part that I originally misunderstood.
I understand now. Thanks all. 🙂

wooobob – yes as long as the new property passes the mortgage company’s survey and the LTV is OK.

And your current employment situation is acceptable to the lender at the time too!

I re-mortgaged with the Woolwich on a low fixed deal. Then I needed to move house so found a new house and a buyer for my house. My situation needed re-assessing according to their latest lending criteria. As I was on a 3yr contract not a perm contract they decided they wouldn’t lend to me anymore under new criteria – despite my history and always being on fixed term contracts. So I had to pay them £1500 in early repayment charges and went to another lender and got a marginally better interest rate (not enough to make up for the £1500 mind).

So no new bike for a while.

Cheers Mudshark.

Looks like I will pay off my mortgage about 5 years early if interest rates stay where they are (unlikely I know).

Hi Mudshark, Another here for copy of spreadsheet please – currently going through the pain of trying to sort out a re-mortgage, current deal is endding and they are not offering future ones : (

Looks like I will pay off my mortgage about 5 years early if interest rates stay where they are (unlikely I know).

They might be the way things are going

Edit: Please ignore

wooobob – do check with your lender. If you are on a great deal, ie one they would not/could not replicate today then they will quite likely try and get you to take out a new loan at better terms to them than allowing you to transfer.

To everyone talking about “deals”, the world has changed, all the measures being put in place to “prevent this happening again” are making it much more expensive for banks to lend and these extra costs have to be passed on.

I am in banking although not personal finance.

Another request for the spreadsheet please! If I manage to work out how to get my web hosting up and running this afternoon, I can upload it and stick a link to it. It outfoxed me last week though…