Capital/Interest ratio after the introductory period - is a nasty shock in store?

I read sosos's query differently, in this his example of for a repayment-only mortgage, not a part and part, but may have misunderstood how the interest and capital constituents of those repayments change over time.

If my understanding's right, the nasty shock to the capital:interest ratio comes from NOT remortgaging and the only way to get near to the existing one is from remortgaging.

I haven't got enough information for the example ratios to tie up, so adding a term and/or intial loan amount to the example would help here.

If the initial loan was on a repayment basis for £252k and 25 year term, initial repayment would be £1,500. That would be split about 72:28 between interest and capital. It changes gradually to 68:32 just before the initial term is up. Because the interest rate shoots up for month 37, though offset by having a bigger payment, the ratio is at 75:25 when on the SVR. However, if able to secure a 5.29% remortgage, the ratio would remain at 68:32.

sosos - please can you clarify your query. I'll rework the above if you want on different assumptions.

Ah - ok, I said I wasnt sure if I was getting the point and having re read it, I believe you are right in the approach you have taken James.

Due to the way the C&I ratio works, it does mean effectively starting again with the ratios and that is often why when I see a retention product being offered it will never accurately reflect in a mortgage calculator.

The OP, you should approach your exisiting lender to see if they can offer you a retention deal and this should not upset your ratio.

However, going to another lender on full repayment for the same term, will still mean that you are mortgage free at the end of the term (providing payments are made in full and on time). The key is whether your existing lender or a rival lender can offer the best payment.

Ignore the hypothetical % maninthe street.

You borrow £100k over 20 years at x% and it costs you £500.

You now have 17 years left and you come to the end of your deal and you are offered a product by existing lender at say y% on a new debt of say £96k and its going to cost you say £525 this time.

You go to a mortgage calculator and you put in the figures for 96k over 17yrs and you will not get the payment to match because the % split of the payment being offered by current lender will have a higher % of capital compared to that of a new mortgage and less interest.

This is what the OP is getting at - they were not aware that the repayment split of interest and capital would start again. Its not a way I would look at it but I can see where they are coming from.

sosos wrote: »

In August 2006 I got a mortgage for 5.29% fixed until August 2009, thereafter 6.5% variable.

For the sake of simplicity, following figures are imaginary. Let’s say at the moment, my £1500 monthly repayments comprise 70% interest and 30% capital. Hardly a dent in my loan, but from August 2009, that ratio will shift to 50% interest and 50% capital. Better, but with higher costs due to the high variable rate.

My mortgage broker made it sound simple. “Get a fixed loan for 3 years and then in 3 years’ time just switch to a more competitive deal than the 6.5% variable ” He failed to mention at the time the implications for the capital/interest ratio.

My question is this. If I switch in August 2009, and continue with a new provider’s deal, will I be yet again lumbered with the appalling 70%/30% ratio. What have been people’s experiences with this??

Check what the variable rate is *NOW* the KFI etc usually tell you what it was when you took out the mortgage... a lot of people coming off fixed are being pleasantly surprised that their SVRs are lower than the KFI indicated....