Understanding Mortgages

kingstreet

quantic wrote: »

Sorry kingstreet, perhaps I didn't come across how I intended to, I wasn't having a go at mortgage advisors on a whole, as I'm sure there are some very good ones out there like yourself, I was just saying my experience with the ones I have seen so far as been less then great.

For example; The mortgage advisor that I was forced to see, (in order to view one property) said that he would recommend going for a fixed 3 year deal at 7%. In the end I got a 4.29% deal with 10% deposit. He said that at least I would know what I was paying for 3 years...

If I had taken his advice I would be £6,181.92 out of pocket over the 3 year period (providing base rates stay low, which I believe they will). With money I have already saved being on this tracker, the base rates would have to go up about 5% for the rest of the 3 years in order for it to make me worse off.

None taken!

I should have said there are good and bad ones. I just don't know any of the bad ones personally.

Tied estate agency adviser, by any chance?

quantic

Yeah, tied "independent" advisor, that one was... but I also had a independent come out who recommended a very similar option.

noodle

quantic wrote: »

Hmm, this is difficult to get your head around. Surely, if you remortgage at a lower rate, you still might be worse off, if the interest is biast towards the beginning of a mortgage.

Interest is calculated according to what is owed - so think of it as a monthly cost that you pay, with everything else going against the capital.. and if you keep paying capital then the interest cost reduces each month.. and so if you keep your payments at the same level, you're paying more capital each month.. and so on and so on.

There are products that are a bit different but, as far as I'm aware, they're the exception.

So the key is, as you've realised, just to keep that monthly repayment at the right level, and if you do that you'll always benefit from a lower rate because that interest cost will be lower each month, meaning more of your money repays capital.


I absolutely understand why you've had some confusion here. Whenever people* start to try and explain or sell me finance products they focus on monthly payments and treat me as if that's all I should be interested in. It can often be quite difficult to get beyond that and have someone realise that your priority is to get the debt paid off, rather than have payments as low as possible.

I've recently had someone, who knew I was currently paying almost triple my 'standard' monthly payment, urge me to consider extending my mortgage term to 'leave more in my pocket each month'.

For someone wanting to be mortage free it's usually simple - combine the lowest cost product you can get, with the highest monthly repayment you can make.

(*I should say, mind, that I do have a mortgage broker and whenever I've used his services he's always listened to my objectives and advised me about suitable products.. so there are plenty of good guys out there)

quantic

Cheers for all the useful info in this thread. I have much better understanding of it now. It works pretty much how I originally thought it did but over time people have put different idea's in my head, which has left me a little bit confused, so its nice to get some clarity.

I agree with the above post. I am not interested in the least about having an extra £50 in my pocket each month if it means I will be making mortgage payments for many many years more then I could be.

It sort of makes sense now, as to why some of the people I know stil have 25 years of their mortgage left, even though they have been paying the original one off for 20 already. They must have been getting a new mortgage with the same original term each time, usually to fund a more expensive house. I suppose this is the only way some people can move up the ladder though.

As far as I'm concerned, I wont be moving up price wise unless I can afford the new amount with the same original term.

e.g. I wouldn't wanna buy a house for 150k and getting a new 30 year term, I would only do it if I could keep my current term and afford the new payments.

m_13

It's irritating that most mortgage providers illustrate on and try to put you back to 25 years. They seem to find it odd when you want less.

My sister remortgaged a couple of years ago and her new mortgage is at least 30 years (I think 35) to afford the house she wanted.

We've tried to reduce the term each time by at least a year lower than the outstanding years as I really don't want to be paying a mortgage in my sixties even though I now have to work until I'm 65 years and 3 months :mad:

I love overpayment calculators but as the mortgage is for a BTL property (but secured on our home) there's no benefit in paying it off early. The money we would use though goes into savings.

Thrugelmir

m_13 wrote: »

It's irritating that most mortgage providers illustrate on and try to put you back to 25 years. They seem to find it odd when you want less.

My sister remortgaged a couple of years ago and her new mortgage is at least 30 years (I think 35) to afford the house she wanted.

You've summed it up. People want to borrow the maximum possibly amount at the lowest possibly monthly cash outgoing. Even though it will cost them far more in the long term than taking a far more measured approach of moving up the property ladder. .

kingstreet

Thrugelmir wrote: »

You've summed it up. People want to borrow the maximum possibly amount at the lowest possibly monthly cash outgoing. Even though it will cost them far more in the long term than taking a far more measured approach of moving up the property ladder. .

Consumers are conditioned to believe the cheapest monthly payments equals the best deal for them.

Slightly away from the topic - I wonder how many people taking mortgages from HSBC are buying expensive second-rate insurance products from the bank whilst patting themselves on the back for their money-saving prowess?

Thrugelmir

kingstreet wrote: »

Slightly away from the topic - I wonder how many people taking mortgages from HSBC are buying expensive second-rate insurance products from the bank whilst patting themselves on the back for their money-saving prowess?

And signing up for "premium" current accounts to obtain preferential mortgage rates. Cost effective while the mortgage is large but over time the benefit diminishes.

noodle

Thrugelmir wrote: »

You've summed it up. People want to borrow the maximum possibly amount at the lowest possibly monthly cash outgoing. Even though it will cost them far more in the long term

Well.. if Carol Vorderman thinks that's a good strategy, who are we, mere mortals, to argue?

WellKnownSid

noodle wrote: »

Well.. if Carol Vorderman thinks that's a good strategy, who are we, mere mortals, to argue?

The Carol Vorderman strategy was to borrow against the future value of your home to consolidate the debts you couldn't service, thereby allowing you to go out and buy more stuff you didn't need to fill the house you could no-longer afford and now owned even less of, to impress people you didn't like with money you still didn't have. Brilliant!