Advice please - Mortgage term deceasing but not capital!!

becky1974

We took out our repayment mortgage in 2000 for £65,000.00 over 20 years – we have added a further £10,0000 over the last 8 years and have switched in and out of various fixed/tracker rates over this last 8 years to try and get the best deals.

Our mortgage balance as of today still stands at over £71,000.00 but of course this amount is now being paid over a lesser term (12 years) as it is 8 years on!

Our mortgage amount is hardly decreasing at all yet the term is decreasing all the time and therefore every time we move to a new deal, which we do every two years or so, the amount of mortgage is not much less yet the term is less every time which is keeping our payment so high!

Did we do anything wrong or is this what happens with repayment mortgages? We just really don’t want to increase the term of our mortgage as we are nearing having only ten years of our mortgage left to pay!

Is there any way around this (probably not) and can anyone tell me when, during the period of the 20 year term, the capital part of our mortgage will actually start to be paid off thus reducing the capital we need to borrow each time we switch mortgage deals?

Any advice would be most welcome

Beck

tinkerbell84

You pay off very little capital in the first 6 or 7 years of a repayment mortgage. But each month your payment covers a little more capital and a bit less interest.

By the time you're about 18 years in, you'll be paying big chunks of capital off every month,

tinkerbell84

if you google 'snowball calculator' you'll be able to put in your figures and see how you are paying off capital and interest monthly

happybroker

you are probably adding fees etc to the mortgage each time you switch which is one of the downfalls of switching so regularly.

when you first start with a repayment mortgage the amount of capital you pay off every month is really small. This increases each month due to the fact that the interest element is slightly lower (because you pad a bit of capital off last month) but you payment stays the same meaning a larger part of the payment is capital. This speeds up in the later years of the mortgage so you will see a more drastic change in the balance as you near the end of the term.

If you have a 12 year term on your £75k then keeping up with the payments will mean you will have repaid the mortgage at the end of the term so I wouldn't worry about it too much

£71k over 12 years @ 6% is about £700 a month, of which £355 would be interest meaning you would be paying about £345 of the balance

WestonDave

The mortgage amount is relatively low which means that in the intial stages the capital repayments will also be very low - you therefore need to be careful when remortgaging that the fees for the new product don't wipe out what you have paid off in terms of capital. On a £75k 20 year loan you would only be paying £50 per month off the capital to start with, so if after a year you go and switch mortgages and pay a booking fee, a valuation fee etc, which come to say £300, that's half your capital repayments wiped out.

JazzyJ

Rather than switching lenders (which I am presuming you are doing) you would be better off staying with one lender and negotiating a new deal with them, once your current one has ended. That way, you are not effectively starting again every 2-3 years by paying off front end loaded interest, but you would eat into your capital quicker by staying with the same lender and swapping into another deal, as you will have paid more of the front end loaded interest initially.

happybroker

JazzyJ wrote: »

Rather than switching lenders (which I am presuming you are doing) you would be better off staying with one lender and negotiating a new deal with them, once your current one has ended. That way, you are not effectively starting again every 2-3 years by paying off front end loaded interest, but you would eat into your capital quicker by staying with the same lender and swapping into another deal, as you will have paid more of the front end loaded interest initially.

mortgages don't have interest "loaded" on to the front end.

JazzyJ

If interest wasn't front end loaded then it would not take 7-8 years (assuming a 25 yr term) for there to be significant inroads into eating into the capital. I accept it is not all front end loaded, but it is weighted at the front end, so perhaps I should say front end weighted rather than loaded!

dunstonh

If interest wasn't front end loaded then it would not take 7-8 years (assuming a 25 yr term) for there to be significant inroads into eating into the capital.

Yes it would.

Assuming 25 years and an interest rate of 6.00% you would find the outstanding amount at the end of each year as follows (per £1000)

year 5 - £897
year 10 - £760
year 15 - £576
year 18 - £437
year 20 - £330
year 22 - £209

ultramagnetic_commuter

JazzyJ wrote: »

If interest wasn't front end loaded then it would not take 7-8 years (assuming a 25 yr term) for there to be significant inroads into eating into the capital. I accept it is not all front end loaded, but it is weighted at the front end, so perhaps I should say front end weighted rather than loaded!

You see what appears to be a front end loading when you start a 25 year term because you owe more capital at the start and this goes down in time as you chip away at it. Switching lender after say 5 years will only re-introduce the apparent 'front loading' if you revert to a 25 year term each time you remortgage. If you took the new deal from 20 years you'll pick up where you left off.

minimike2

LOL - If mortgage interest was front loaded I think very few people would even want to own a home! It would be crazy!