Continuously Remortgaging for 25 years?

Jeff_Jones

Can anyone help?

I am thinking of remortgaging every few years to take advantage of the best deals. However I remember seeing a graph showing the profile of how the repayments contribute towards capital and interest over 25 years. Virtually all repayments contribute to the interest in the early part of the term; it is only in the final years that the main portion of repayments contribute to the capital. Therefore I worry that if I continuously change mortgage every few years, my repayments will always be contributing to the initial interest part of the profile and not eating into the capital ( I will be continuously changing mortgage companies before reaping the benefit of contributing to the later “capital” part of the mortgage term).

I assume if you stay with the same mortgage company for 25 years, then they can justify contributing all the repayment into capital in the final few years as the majority of my repayments were used for interest in the early years of a term ( the significant contribution into capital at the end is like a loyalty reward for paying mainly interest in the early years)


If I keep changing mortgages and hence only contributing to the “interest” part of the mortgage at the start of the mortgage term, which mortgage company in 20 years time will be happy to allocate all my repayments into paying off my capital? (ie as far as they are concerned there will be no loyalty reward as I have not borrowed from them in the previous 20 years)?

I just worry that in 20 years time I would not have chipped away at the capital.

Hope this makes sense?

I look forward to any advice.

Jeff

Hillfly

As long as you reduce the mortgage term each time you remortgage changing lenders will have no effect as with a shorter term a greater % of your repayment is capital.

Kaz2904

I see what you are saying but you have got a little muddled.

The way it works is that at the beginning of a 25 year period you owe (eg 100k) so you are charged interest on the amount you owe.
After 2 years you switch company, you don't borrow the same amount so the amount you owe is less and the LTV (Loan To Value) is lower. You therefore pay less interest as you have borrowed less.
After another 2 years you owe less again.

I'll try to explain it with figures.
25 yr Mortgage taken out May 2007= £100000 @ 5.29% = £601.61 per month.
23 yr Remortgage May 2009 = £95939.27 @ 5.29% = £601.61 per month.
21 yr remortgage May 2011 = £91,426.42 @ 5.29% = £601.61 per month.
19 yr 2013 = £86,411.10 @ 5.29% = £601.61
17 yr 2015 = £80,837.37 @ 5.29% = £601.61

So if you always remortgage at the same interest rate then your payments would never increase. The way you end up saving money is by sticking to the same or a lower interest rate and at the end of your deal you will move onto the lenders Standard Variable Rate (SVR). You can work out all the scenarios on https://www.whatsthecost.co.uk/mortgage.aspx Hope this helps you with your dilemma!

Dithering_Dad

I agree with Hillfly, when you remortage, don't set the mortgage term to 25 years each time or you'll never be able to pay it off.

If you have your 25 Yr mortgage for 3 years with a provider and then switch to a new provider you arrange the new mortgage with a 22Yr repayment period. If in a further 4 years you remortgage, you arrange the new mortgage with the term set to 18 years.

Even better (and only if you can afford it), why not reduce the term by an additional year each time so that the mortgage gets paid off slightly quicker without a huge impact financially. So using the first example above, instead of arranging a 22 Yr term, arrange a 21 Yr term instead...

Jeff_Jones

Thanks to all.

Kaz2904, how did you calculate the capital remaining over years in your example? Is there a calculator?

roswell

one problem with remotgageing every 2 years is the cost of the new products, probably better to get a 10 year fix at similar costs to a 2 year then make your over payments in those 10 years .. if you cant get it out the way in 10 year then re asses a new fix

Kaz2904

Yes the calculator is in my original post.
Roswell is quite right about the long fix- we have a 5 year this time. The thing with having a fixed rate is not to do it when there are high interest rates unless you can definately afford the repayments for all that time and are able to overpay.
Our fixed rate allows us to make overpayments of up to 6 times our minimum monthly payments (But our wages do not :rotfl: !). We were a bit gutted for the first year of our mortgage as the interest rate went down and down but for the last year it's gone up and up!