The merits of re-mortgaging

Starsky_4

I have a fundamental question that not even some mortgage advisors of well known high street Building Socs. have been able to answer – hopefully someone can on this board.

On my theoretical re-payment mortgage of £100k I pay a monthly amount, say £500, meaning £6000 a year. Due to the way mortgages are set up, in the early years not much of this goes to paying off the mortgage, the rest is put towards paying the interest. So, let’s say in the first year only £1500 of the £6k goes towards the balance and £4.5k towards interest, leaving a balance of £98.5k. In the second year this is about the same, but maybe a little more goes towards the balance, leaving approx £97k. It is not until the later years that I start to significantly eat into the balance.

The issue comes if I then come to re-mortgage to another company, (say after 5 years) – I will then be back to square one of paying my monthly amount, with only a little going towards the balance and the majority going towards the interest payments of my new lender, whereas, if I had stayed with my original lender I would be greatly eating away at the balance.

Please can someone explain what I am missing here as thousands of people do re-mortgage so it can’t be that much of a problem, however no one as yet has provided a reasonable explanation….

Thanks

payless

So long as new mortgage is set over the same remaining term and not extended again this does not cause a problem, as they amount taken off capital would be the same ( assuming same interest rates) whether in year 1 of the new 20 yr remtg, or year 6 of the existing (original 25 yr ) mortgage

( ignores swap fees and differences between daily/ annual rates)

herbiesjp

As long as the term continues, and is not extended, then the mortgage will be cleared by the end of the specified term.

lisyloo

I will then be back to square one of paying my monthly amount, with only a little going towards the balance and the majority going towards the interest payments of my new lender, whereas, if I had stayed with my original lender I would be greatly eating away at the balance.

If you went for another 25 year term then you would be back to square 1.
However if you shorten the term it will be exactly the same.

e.g. being in year 6 of a 25 year mortgage is exactly the same as being in year 1 of a 20 year mortgage with an amount of capital that's been reduced slightly for 5 years.