Remortgaging - Two options, but which to choose?

italianie wrote: »

In the end I went to two brokers and both told me the First Direct 1.94% feesaver for 5 years was better then they could offer and beats Atom's current rates for which I'd also have a broker fee of £300, so it seemed a no brainer to go with this option. I've taken the full term over 10 years, but still aim to pay it in 5 with overpayments and lump sum payment which are both unrestricted with the FD mortgage.

So the application is now in with FD, it's all been agreed in principal, I've passed the credit and valuation checks, so providing all goes to plan, I should be switching in 4 to 6 weeks. I took the option of opening their FD Bank 1st Account which gives me £100 cash back, I don't think there's any benefit of continuing to use The RBS One Account as a bank account once the balance has cleared.

The only doubt in my mind is :- could I have paid it quicker with sticking with the RBS One Account or would there have been any benefits to stick with it? I'm not sure exactly how the interest works with a CAM compared to the fix rate but I know you pay the interest on the current balance with a CAM, where as with a fixed rate the interest is paid on the full original balance for the mortgage life? Someone might be able to reassure me on this point, that I'm not loosing out? I also know with a fixed rate you pay off the interest mostly at the beginning of the term, but with the CAM it doesn't work like that.

Anyway I'm hoping I've made the right choice as on pure interest rate basis, 1.94% with FD vs 4% with The One Account, seems a no brainer in terms of saving on the interest, and the fact I can make unlimited monthly overpayments and lump sum payments, seems to give the same flexiblity to pay the mortgage early that the One Account provides. My goal is to repay the full amount just after the fixed term comes to a close to avoid the early repayment penalty.

Worst case scenario's would be, I either don't repay it in the fixed term and continue paying it for the full 10 year term I've taken, or I pay it earlier then the fixed term which incurs a 2% early repayment fee, but even then that is only £880 on £44000.

tyllwyd wrote: »

I think you might be getting confused because in the past some loans might have been frontloaded with interest (ie you paid off all the interest before you started paying capital) but I don't think that happens now.


We used to have a Virgin One current account mortgage back in the day, and the advantage was that they treated your current account and mortgage lending as the same thing, so any money that would have been a positive balance in a separate current account, would reduce the overall borrowing on that day. Whether it's better than a traditional mortgage depends on the relative interest rates, and whether you are disciplined enough to make sure you don't fall into the trap of spending more than you earn, which is very easy to do with a current account mortgage.