Mortage fixed term renewal confusion

Lebowski25

Hi All

10 years ago, I got 25 year repayment mortgage Capital and Interest.

After the first 5 years at a high fixed rate (6.6%), I seeked asvice from a mortage adviser.

The mortgage rate had dropped at this time, and was offered another fixed rate at 5.1%.
Because of the reduction, I decided to transfer the mortgage to a new bank and reduce the term by 5 years (15year mortgage)

The 5 years have come to an end now, and my mortgage statement looks slightly healthier, although not much has actually come off the original loan.

I imagine more capital is being taken off now than interest??
if I look for a new deal, will the new bank take into account how much interest has been paid off?

Is it worth reducing the 10 years left to 5 years, as the rate is lower and I am earning more?

It is all very confusing, how does a bank know how much of my 10 years repayment is interest, or capital?

Am I simply searching for a re-mortage or do I need to stick with the bank's variable rate?

Thank you for reading

any help would be most appreciated.

dimbo61

The lender will look at how much you now owe and what offers they have available with your current LTV ( loan to value)
They also have to look at affordability.
So if you asked to reduce the term to say 5 years and that meant that your mortgage payment was £2000 a month and you earned £2200 a month they would refuse you !
But if you had a 10 year term and the payment was £1200 a month that might be OK
You can always overpay ( check if unlimited overpayment allowed)
You do pay mostly interest in the first few years and the shorter the term the less interest you pay.

Lebowski25

dimbo61 wrote: »

You do pay mostly interest in the first few years and the shorter the term the less interest you pay.

This is what confuses me.
If I switch to a different bank, is everything transferred over?
ie. do they know how much interest has been paid?

beecher2

Lebowski25 wrote: »

This is what confuses me.
If I switch to a different bank, is everything transferred over?
ie. do they know how much interest has been paid?

They will know how much you still owe from looking at the balance outstanding. They don't need to work out how much interest you have already paid. Maybe you should see another mortgage adviser to explain how it all works.

Lebowski25

I think I will need to see another adviser to be honest.

When you say
"They will know how much you still owe from looking at the balance outstanding"

According to my end of year statement, I seem to owe a fair bit of my original borrowed amount.
most of my repayments for the last 10 years has been mainly interest.

What I don't get is If I transfer the mortgage to a different lender, i still owe a huge amount of money, as it's mainly been paying interest up to now.

How do they know what interest has been paid?, or why would they give me a mortgage?, considering most of the interest has been paid to the previous lender.

beecher2

Lebowski25 wrote: »

How do they know what interest has been paid?, or why would they give me a mortgage?, considering most of the interest has been paid to the previous lender.

It is irrelevant how much interest has been paid - all that is important is how much you still owe.

Lebowski25

I'm finding this really hard to explain.

Without releasing exact figures.

I applied for £100,000 25 year mortgage

for 5 years I paid £800 a month at a fixed rate. (800x60 = 48,000)

End of year statement reads
Amount owing £90.000 (mostly iterest paid)

I get a new deal with another lender and because of the reduced rate, i am able to skip 5 years and pay the same amount.
15 years mortgage
90.000

for 5 years I paid £800 a month (48.000)
amount owing now £70,000.

I now have 10 years left.

That's £98,000 paid in 10 years and only £30,000 has come off the total amount borrowed.

How do they work out how much interest from each monthly payment goes towards the amount owing?
If I move lender, do I start paying mainly interest again?
why would the lender accept less interest payments at this late stage?

Please can someone explain how this works.

TrickyDicky

Basically as the capital reduces, the interest reduces.

Heres the basics (very rought fiigures)
If you have £100,000 in the account and pay 6% interest, your interest for the year will be £6000.

lets assume you pay yearly, with the same amount paid each year, say £7000.

In Year one, you pay off £7000 - £6000 of this is interest, so you only pay £1000 off the capital.
Year 2: balance is now 99,000, 6% interest = 5940 - so 7000 paid off means you only pay £1060 off the capital.

This keeps building up so each year with the interest decreasing so the amount left over from the payment is greater.

By year 10: balance has gone down to 87,000 but interest is now only £5300
In total, at this rate, would take 34 years to pay off - total amount of interest paid would be £133,816 on origional loan of £100,000



The lender never accepts less interest payments - you always pay interst on the outstanding balance.

dimbo61

Have a look on the website "whatsthecost" and play with the figures.
I reduced my mortgage from 22 years to 10 years and this saves me £50,000 in interest! BUT I have to pay £500 extra each and every month.
A new lender does not care what interest you paid in the past ( I have paid 15.4% in 1989) what they want to know is how much you owe and want to borrow off them and whats your LTV on the property.
They can then look at what deals they have and you can decide how long you want the mortgage over

Lebowski25

It's strating to make a little sense.

However I was told when I first took out the mortgage, that it was a repayment mortgage, and the payments would be something like this.

Year 1 - (800x12) £9600 - probably £9550 in interest about £50 paid off loan
Year 2 - (800x12) £9600 - probably £9500 in interest about £100 paid off loan
Year 3 - (800x12) £9600 - probably £9400 in interest about £200 paid off loan
etc.

Until the tail end which would have been
Year 20 (800 x 12) £9600 - probably £1000 in interest about £8600 paid off loan.

Does this seem right??
If so, why would a new lender pick up the loan, when there is nothing to be gained in interest?

Is it worth staying with my current lender for the next 10 years?

sammyjammy

They aren't picking up the existing loan, they will be lending you a new amount (what you currently have outstanding), because this is lower than the original amount you borrowed and you are also reducing the term you will be paying a higher amount off the capital. The mrotgage you have that has its fixed rate has nothing to do with it.

If you stayed with your existing lender then your loan would continue but dependant on whether the revised interest rate is more or less you'll pay more or less off the capital and more or less in interest.