Hi,
I hope someone can answer this question with respect to a table mortgage.
If I am with Bank A, and 5 years into a 25 year mortgage. Then I decide to change to Bank B. I now take out a mortgage with Bank B for
Everything else being equal, am I paying more in the long run because when I change from Bank A to B, I am now starting over in terms of paying all interest and no principal.
I hope I have explained myself....
Cheers
-Al
No. Exactly the same (you may need to pay for a valuation and any application fee for the new mortgage though).
Dodgy mortgage brokers, and even banks themselves, used to spin utter bullshit about you being worse off with a repayment mortgage if you switched mortgage/moved house after 5 years, so they could con the gullible into buying an endowment, which they made massive commission on.
No. The proportions of each payment which go to interest and principal, for a given interest rate, depend solely on the amount of time the mortgage still has to run. Therefore the principal proportion is
*initially* smaller for a 25 year term than for a 20 year term, if the interest rate is the same, but the proportion creeps up little by little every month. After 5 years into a 25 year term, the proportion will have crept up to exactly the same level as it would *initially* be with a 20 year term.Example: Loan for £100,000 at 6% per year for 25 years (calculated as for 0.5% per month for 300 months).
Monthly payments will be £100,000 * 0.005 / (1 - 1.005^-300) = £644.30. Obviously interest only for the first month would be £500, so your first payment takes £144.30 off principal, and the amount owing after
5 years, i.e. after the first 60 payments have been made, would be £100,000 * 1.005^60 - £644.30 * (1.005^60 - 1)/0.005 = £89,932.18, i.e. you would have paid off a total of £10067.82 of principal which, as you should expect, exceeds 60 * £144.30.Taking a 20 year loan at 6% for £89,932.18 we calculate the monthly payment as £89,932.18 * 0.005 / (1 - 1.005^-240) = £644.30, and it should be no surprise that the amount is the same as above. For the first month the interest would have been 0.5% of £89,932.18 which is £449.66, so the 61st payment of the 25 year loan, or the 1st payment of the new 20-year loan, would be £449.66 interest and £194.64 principal.
As others have said, no. Nothing extra at all (other than arrangement fees, redeption fees, valuation fees etc). However, if you increase the remaining term (leaving the remaining amount outstanding the same) you will pay more interest. Reducing the remaining term will reduce the amount of interest you will pay so beware of going from e.g. 18years remaining to 20 years remaining when you remortgage.
Tim.
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