Help understanding Re-mortgage of a repayment mortgage

solorize

I wonder if someone can shed any light on this for me.

I currently have a 30 year repayment mortgage on a 2 year tracker
deal.

I understand that in the first few years it just pays off mostly
interest and does not really eat away at the actual loan.

But when I come to remortgage next year, if I move to another
deal with a different lender, does the mortgage get ported
over to them and how does this affect the actual loan.


Say I had a loan of £215,000 and by the end of the 2nd year of
my current deal I had left £212,000 of my loan as most
of my payment would have just been paying off the interest.



How would this then work with the lender?

Do I now have to reduce my term to 28 years and start paying the
interest off again? but now on the figure £212,000
therefore at the end of the new re-mortgage deal say for a further
2 years I would only have paid off another £3,000. Which would mean
that the loan would never get paid off within the 30 year term?
As this would mean that if I only paid off £3k each year it would take
like 71 years to pay it off! Unless the monthly payment were upped significantly.

Is this correct or am I missing some vital point.

Sorry if this post is a little disjointed, but I am having a hard time trying
to put into words what I want to say.

Thanks in advance,

Mark

koexelek

Keep within your original timescale very time you remortgage.

That way you will pay it off within the original term.

e.g if you took out a mortgage for 30 years, if you remortgage after 2 years, do a 28 year term, after 4 years, a 26 year term etc etc etc

If you can afford to reduce the term more than that, all the better

Locoblade

Think of it as an interest only 30 year mortgage for a second, where you never pay it off. To furnish this debt you have to pay say £800 a month in interest, on say a £215,000 loan. Because the capital is static at £215k, the interest is always £800 if the rate doesn't change.

Now change it to capital repayment, paying say £1100 a month. Month 1 you pay that £1100 to the bank, £800 of which covers the interest (as above), £300 of which pays off some capital.

In month 2 you again pay £1100, but because you now only owe £214700 capital (due to the £300 of capital paid last month), your interest owed will be slightly lower, maybe only £799, so your capital repayment this month is £301 by default (£1100-£799). Month 3, you now owe only £214399 in capital, so the interest you pay is say £798 and therefore the capital repaid is £302.

Although they're fabricated figures, you can see that without changing payments or terms, each month the percentage of your payment that's paying off capital is increasing slightly, therefore although you might only pay off £3000 in year one, you'll pay off £3500 in year two, £4000 in year 3 etc, ie your capital repayment accelerates as the amount owed is reduced.

This is why at the start of your loan you're mostly paying interest, and very little capital, because there's lots of capital therefore lots of interest each month. Its nothing to do with any order in which you pay off the loan though, so remortgaging doesn't lose you anything as long as you remortgage with the same term remianing, don't go back up to 30 years each time.

getmore4less

solorize wrote: »

........
Is this correct or am I missing some vital point.

It can be a bit difficult to get it in the head.

A simplistic view of a mortgage ther eare variation on this but basicly this is what happens.

The way(most) mortgages work is the interest is calculated monthly on the outstanding amount and added to the loan.

You then make a payment(usually the same time).


If this payment is the same as the interest then your debt stays the same and the interest is the same next month,, interest only mortgage.

If you pay a bit more then the debt goes down and you pay less interest next month and so on. repayment mortgage.

So if you wanted to make the same capital payment every month spread out over the term of the loan your payment would go down as the debt does down and the interest goes down but the initial payment will be quite large and the last payment small.

Most people like to have equal payments so the loan is structured so that at any given time the remaining payments will pay the interest due each month and a bit off the capital such that at the last payment all the capital is paid off. so over time the capital bit gets bigger as each payment results in lower interest the next month.

So over any given period the amount of capital repaid is a function of the total number of payments left and the interest rate and the size of the loan and (this is the key bit) totaly independent of how many payments have been made before.

Have a look at the numbers month by month for real mortgages using a calculator http://www.whatsthecost.com/mortgage.aspx press calcualte then details and it will show month by month interest capital and debt.

Start with a 30y loan and then a 28y loan based on the capital left after 2 years on the 30y loan and you should see the payments are the same(or very close, rounding erors).

Gorgeous_George

After 2 years, it is likely that you owe £210K (based on a 6.46% mrtgage rate for 2 years - It could be as low a £209K on a better rate of 5.46%).

If you change lenders or stay with the same lender on a different product, you can start again with a term of your choosing. The loan amount, or LTV, will be based on current house value.

Porting is only applicable if you move house. You 'port' the mortgage to a-n-other property.

GG

Rabiddog_2

solorize

Thank you for all your replys.

That has helped me out a lot, now I have a much
better understanding.

I have never got to a point to re-morgage as I have
always moved before I finish my morgage deal.

But this time I will be re-morgaging so just wanted to
get into my head how it all worked.

Thanks again for all your help.

Mark