As for some reason, a high proportion of the monthly repayments on a mortgage in the initial years go towards interest payment rather than repaying capital, is it really wise to switch to another mortgage after a two year fixed deal?, surely you are again wasting most of your payments on interest rather than capital all over again each time you remortgage?, or am I on the wrong track.
When you remortgage with the same provider, are you again expected to stump up a huge deposit?, or just the remortgage fees?.
Seems the chase to get the lowest APR as an obvious benefit is swamped by the high early interest proportion with the addition of hundreds of pounds in fees just for remortgaging with the same mortgage provider.... what are your thoughts on this?.
The reason is so that you have a constant repayment throughout the whole term of the mortgage.
If you don't like this arrangement, you can overpay up to a point with most mortgages, and overpay more in the first few years so that you start making more of a dent in the original loan amount sooner. This is not a bad idea I think-- if you're going to overpay, obviously the earlier you do it the better.
It should work out the same-- except of course for all the fees and charges etc. involved with switching.
Suppose you borrow 100k over 25 years at 5%. You would pay back 584.59 a month. A good deal of that 584.59 is interest, but nevertheless, after two years you should have paid off 4229.30 of the original loan.
So you now owe 95770.70. If you borrow that amount for 23 years at 5%, the repayment will be exactly 584.59, just what you were paying before.
You never pay any interest that hasn't actually accrued in the time between when you borrowed the money and when you make the payment.
The high early interest proportion just reflects the fact that you've paid off less of the loan, and the interest you pay back in the first two years is only for what you've borrowed in the first two years. They're not doing anything like adding future anticipated interest owed into those payments (that would be really nasty...).
I don't know about this.
It's all the hundreds of pounds in fees that make the difference-- you have to compare all that with the amount you're going to save by getting a lower rate. But AFAIK it usually is better to switch rather than go onto the lender's "standard variable rate" because that's usually a terrible rate. Another thing you have to take into account is that these shorter deals (two years as opposed to four or five) mean you have to pay the cost of switching more often.
The deposit is the difference between what the house cost to buy and how much you are borrowing, so when you remortgage the deposit has already been paid, so there is no need to pay it again. But if your circumstances allow, you may prefer to inject some of your savings, in order to reduce the total borrowing, and hence your interest payments.
Nonsense. The interest proportion is a red herring. [*]
A useful guide is to try to minimise the Total Amount Payable, which is always equal to the principal plus the Total Interest Payable (TIP). What if the interest is a high proportion of your monthly payment, but the payment itself is very low? It's the actual *amount* of interest you pay that should be of concern, not any airy-fairy proportion.
There are two key elements which will help minimise your TIP. One is a low interest rate, the other is a *short repayment term*. Of course, the shorter the term, for a given interest rate and amount borrowed, the higher will be your actual monthly payments, so you need to balance how little you want to pay overall with how much you can afford each month.
The fees are indeed an issue you need to consider when making your decision. Work out how much interest the deal would save you over the fixed period in question, and see whether it exceeds the sum of all fees involved (remember it's not just the remortgage application fee, but there may be a valuation fee involved, not to mention legal/registry fees in connection with discharging the old and recording the new mortgage.
[*] The high proportion at the beginning is a consequence of the perceived need to keep payment level constant throughout the term. Interest is always charged on the balance of debt outstanding, and this is of course maximal at the outset. Any amount you pay more than interest-only will reduce the debt. Given equal payments every month, the higher you make the payments, the less time it will take to clear the loan. For a give interest rate there is a direct relationship between the interest proportion of the payment and the number of payments left to be made.
Hence if you switch lenders or products, one thing you *don't* want is to re-start a whole new 25-year term. Instead, try to keep the original redemption date fixed, i.e. if you remortgage 5 years into a 25-year term, the new term should be for 20 years.
I went for a lifetime tracker, tracks BOEBR + 0.59% or something. It is easier than constantly swapping and fully flexible. As I make large overpayments the lower rate deals do not make sense, and I could certainly do without the paperwork.
The problem with swapping now is that many fees are disguised and subject to to change. For example, the exit fee can now be 200 uk pounds and providers think they have the right to increase this in the middle of the mortgage term. Also there is a 25 uk pound fee just to get a clear statement of itotal nterest paid (the standard statements do not tell you this).
Then ask them for a 'Subject Access Report' under the Data Protection Act - they have to provide
*all* the info they hold on you (which will include all interest details!), and cannot charge more than
10 uk pounds for it (statutory fee under the DPA).
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