Remortgaging

[ThunderGuts]

Afternoon all,

OK so our current mortgage product is about to end, so to avoid going to the SVR, we want to secure another rate. All good and well. However, there's a crucial bit of understanding I'm trying to get my head around and to be honest, it's quite difficult to put into words so here we go.

Assuming no overpayments, changes to loan value etc.. and a 25 year mortgage. It's entirely possible I've got some or all of this totally wrong by the way!

With a repayment mortgage, at the start of the term almost all the payments are going towards paying the interest. As the mortgage progresses it follows a curve with progressively more capital repayment making up where the monthly mortgage payment goes, until the end of the mortgage where it's almost entirely capital and minimal interest payment.

This next bit is just illustrative for simplicity (!); let's say on year 1 of the mortgage the monthly payments are 95% interest and 5% capital, by year 10 they're 75% interest and 25% capital. If it's a 25 year mortgage and we get a new product with a good interest rate with the current provider (i.e. it's the same mortgage still), then in year 11 it'll carry on where it left off, i.e. roughly 75% interest / 25% capital. However, if we switched to a new mortgage provider, with a 15 year term, the outstanding balance transfers across, so we still owe the same amount and we're still repaying over the same period in time. My question is:

Do we then start out again at the top of the curve, with 95% of the initial monthly payments going into interest, 5% on capital, therefore ultimately paying more in interest if the rates were equal, meaning that any improved rate on offer from another mortgage company would have to be offset against the fact that a greater amount of interest would potentially be paid over the remaining term of the mortgage?

Reading that back to myself it sounds pretty confusing, but I will see if anyone can digest my garble first before attempting to re-write it!

Cheers
____________________
TG.

[Diggs]

My understanding is 'yes', however I am happy to be corrected.
____________________
Now - Speed Triple, old ratty GS550, GSXR750M
Gone (in order of ownership) - Raleigh Runabout, AP50, KH125, GP125, KH250, CBX550, Z400, CB750FII, 250LC, GS550, ZXR750H1, Guzzi Targa, GSX750F, KH250 x2, Bimota SB6R and counting...

[rpsmith79]

To be fair, it's pretty much irrevelent

All you want to do is get the mortgage paid off as soon as bloody possible, and the best way to reduce the amount of interest you pay, is to overpay, as that is coming directly off the balance
____________________
Current Bike: Honda CG125 ES4 // Honda CB600FS Hornet // Triumph Street Triple R

[ThunderGuts]

[rpsmith79]

[Nobby the Bastard]

Actually the curve doesn't change unless you change the term or balance outstanding.

Changing the term will alter the monthly payment (as does an interest rate change) and taking out more or overpaying will chang ethe balance outstanding.

All things being equal, if you don't change the term or outstanding balance, the amount you paid off the balance last month will be fractionally less than the one this month whether or not it's a new deal or the same old one or even Standard Interest Rate. The only change to the amount would be the interest paid.

I knocked up an excel spreadsheet a few years back (cause I used to calculate mortgage interest payments when I was a benefit clerk so know how to do it) to demonstate to a collegue how much overpaying reduces the term more than you expect.
____________________
trevor saxe-coburg-gotha:"Remember this simple rule - scooters are for men who like to feel the breeze on their huge, flapping cunt lips."
Triumph Sprint ST 1050

[ThunderGuts]

Yeah it's changing the term is where I'm at, i.e. if I've done 10 years of a 25 year mortgage, but stay with the current provider, then sure the term hasn't changed. If I remortgage, I'd do so with a 15 year term so I've effectively got the same balance to repay over the same time period, I guess the point I was circling was assuming that resets the curve back to scratch, does that mean that all things being equal I'll be paying more interest, so I'd have to actually get more than a marginally better new interest rate to offset that . . .

I suspect in reality the difference is massive in the scheme of things, but like anything related to mortgages, tiny percentages can be significant sums of money if it's in cash and it's on the desk in front of you!
____________________
TG.

[ThunderGuts]

[Nobby the Bastard]

[GSTEEL32]

As I understand it, what your looking at here is amortisation.

The loan, irrelevant of what it is or how much its for, will have its interest calculated in exactly the same way, over the lifetime of the agreement ( 2 year fix, 5 years, 10 years etc.).

What is being discussed here, is the fact that any lender, irrelevant of the product, will try to recoup the interest charged first, then begin to make inroads into the capital repayment.

You take out a mortgage at Year 1 of 25, your total debt it higher, as is the interest. Over a 5 year product, as much as the first 18 months repayments may be effectively interest.

On years 5 to 20 ( when you remortgage), you have less debt, so less interest, so the next provider picks up less risk, and charges less interest (As a notional sum, amongst other risk variables). He will also charge the interest first, then capital repayment second.

Long story short - interest is always charged upfront, but the amount of interest remains aligned to the prevailing interest rate, based upon the total debt owed.

I fixed 10 years at 2.09% in December ( 6 months before my current deal expired) ..... I wish I had also sorted my bloody fuel bills at the same time....

[stinkwheel]

The proportion of interest gets smaller as time goes on because you are paying off more and more of the capital.

Make it very simplistic. Say I had a loan of £100 at 10% annual interest and my payment was £20 a year.

In the first year I'd be paying £10 interest and £10 off the capital.

The following year I'd only be owing £90 so I'd be paying £9 interest and £11 off the capital.

Year 3 I owe £79 so £7.90 interest and £12.10 off the capital.

Year 4 is £66.90 so £6.69 interest and £13.31 off the capital

I decide to swap providers for year 5. I now owe £53.59 so any interest (depending on the deal I get) will be calculated based on that.

As you can see, the more you can pay off the capital, the quicker it will be payed off.

I've been overpaying mine to the point if I pay any more extra in just now I'll have to pay a fee. So I'm bunging the surplus into a savings account until my current deal is up. When the current deal is up, I'll throw the contents of that account into it then take out another deal.
____________________
“Rule one: Always stick around for one more drink. That's when things happen. That's when you find out everything you want to know.”
I did the 2010 Round Britain Rally on my 350 Bullet. 89 landmarks, 3 months, 9,500 miles.

[Nobby the Bastard]

The interest charged in any given month is 1/12 of the % interest due on the balance due and is done in real time each month. Its that simple.
____________________
trevor saxe-coburg-gotha:"Remember this simple rule - scooters are for men who like to feel the breeze on their huge, flapping cunt lips."
Triumph Sprint ST 1050

[The Shaggy D.A.]

[Nobby the Bastard]

I assume they were subprime lenders and had people over a barrel.
____________________
trevor saxe-coburg-gotha:"Remember this simple rule - scooters are for men who like to feel the breeze on their huge, flapping cunt lips."
Triumph Sprint ST 1050

[arry]

Crude mortgage chart ahoy.


Might need a bit of sodding around with but it'll give you an idea.

[Freddyfruitba...]

I'm fortunate enough to have paid off my mortgage some time ago now, but one bit of info I can pass on is that don't assume that just because you've been voluntarily been overpaying your mortgage payments each month that gives you carte blanche to take corresponding 'payment holidays' if times get tough. It might sound a no-brainer, but at least when I was last remortgaging about 20 years ago it was definitely a 'thing' - do check the T&Cs carefully before you start overpaying if you think there's a slightest chance you might ever want to take a payment holiday in the future.
____________________
KC100->CB100N->CB250RS--------->DL650AL2->R1200RS->R1250RS

[arry]

[Nobby the Bastard]

The stability of a fixed rate mortgage is also under-rated. I personally go for 5 year ones
____________________
trevor saxe-coburg-gotha:"Remember this simple rule - scooters are for men who like to feel the breeze on their huge, flapping cunt lips."
Triumph Sprint ST 1050

[arry]

[Nobby the Bastard]

Offset mortgage is pointless for me. If I have that level of savings I'd rather just reduce the balance I owe and pay a lower interest rate. A couple of grand (now we've bought the car we were supposed to buy a couple of years ago) doesn't really make a difference but no shits given cause 30 grand in 8 years time.
____________________
trevor saxe-coburg-gotha:"Remember this simple rule - scooters are for men who like to feel the breeze on their huge, flapping cunt lips."
Triumph Sprint ST 1050

[arry]

[Nobby the Bastard]

So, Trying to work out the fomulae to work out how much you have pay a each month on a given amount of mortgage payments for a given interest payment, at the exact midpoint of the mortgage term you shound be paying half interest and half payment off the balance.

So, prior to that you have paid 1/4 of the balance and 3/4 of the balance in the second half of the term.

So you can then work out the outstanding balance on the mortgage and thus the interest payment for that month.

Add those together and thats the monthly payment.

I'll have to knock out a spreadsheet in the morning to check.

Edit: The above is all bollocks.


Offset mortgages have a higher interest rate.
____________________
trevor saxe-coburg-gotha:"Remember this simple rule - scooters are for men who like to feel the breeze on their huge, flapping cunt lips."
Triumph Sprint ST 1050

[arry]

[ThunderGuts]

Some fascinating reading here, thanks everyone.
____________________
TG.

[Villers]

Try here.... https://www.themoneycalculator.com/mortgages/calculators/mortgage-overpayment-calculator/#!/dealfinder/mortgages/

Put your balance, term and interest rate and it will show you the curve (remember to take off the overpayment, i.e. make it zero). I use it when trying to sort out mortgages or when considering a bigger one.

Also first post from me in about 8 years or something!
____________________
RS125 > CBR6 > SV650S > ZX636R > GSX1300RZ Hayabusa > 06 RSVR Mille > SV1000S > Street Triple 765 RS