Remortgage novice - a couple of questions

SUPERLOOPY_3

Hi - status 'novice', treat me gently when i ask a simple question which has been bugging me for months! I've got a £45000 interest only mortgage, i need to pay this off 10years max, switch to repayment as the endowment's long gone and i'm getting grey! So - my simple question is this, a 10yr fixed (nationwide) sounds good BUT am i better to take a 5yr and look around after? Sounds daft but if i take a 5 yr fixed (5.19%), what will i be owing after 5 years? Would another fixed, lets say at the same rate 5.19%, be the same as taking a 10yr from the outset? I've heard that most mortgage is interest upfront and that capital is only repaid during the later years so would two 5yr deals = one 10yr deal assuming the interest rate is similar or would my second 5 yr stint cost me a deal more? Crazy, i know, but i'm sure there's someone with the answer out there. Thanks people ...

trafalgar_2

I'll try and answer this for you and be gentle................you will be taking out a mortgage over 10 years,so whichever way you decide to go it will be for 10 years.

if you go for the 5 yrs fixed rate all that means is that you will pay a fixed rate for five years,then move to their standard or whatever rate for the other five .(it's still a 10 year mortgage)


if you take out a fixed rate for 10 years....................it will still be a 10 years mortgage.


your only decision as I see it ,is whether to go for a fixed rate for the first 5 years and hope the rates stay competitive at the end of it ,for the second 5 years............or go for a 10 yr fixed and know where you are all the way through

hope that helps

muckell

It really does just come down to how you feel the interest rate will be in five years time, as to if you take out a five year fix or a ten year fixed. But anything could happed in 5 years with the interest rates. I would say over the next few years there will be rises, but there are more than likely to be drops after.

So its best to go with what you feel safe with.

As with your question about a repayment paying only interest in the early years and the capital in the later. This is'nt wholy true but i do catch your drift, basically you'll be paying say for example on year 1 month 1 of the mortgage 10% capital 90% interest. Year 2 month 1 might be 20% capital 80% interest, and so on. So yes in the later years your mortgage payment will be making a bigger dent into your "actual" mortgage rather than the loan.

Something that might be worth looking into is if your mortgage provider will accept occasional overpayments. I.e if you come into any extra cash, be it £100 or £1000 you can pay it of your mortgage. You'd be surprised how much interest this will save and also decrease the length of the mortgage.

Joe_Bloggs

If you are concerned with specifics mentioned (5.19 fixed for 5 years with a repayment schedule for 10 years) you will initially pay £287 off the principle whilst paying off £195 in interest, total £482 per month. The capital payoff dominates from the outset. After five years the outstanding capital will be slightly over £25000 assuming no overpayments. Coincidently this amount is currently the threshold for a new mortgage deal.
J_B

Hobo_2

Good point Joe, as you won`t get a mtg for £25k or less on a re-mtg @ 5yrs on.
If you`re looking at 10yr fix Cheshire do 5.28% 15yr but you get flexibility in that you can overpay up to £5,000 pa = circa xtra £400 mth which allows you to pay more than a % limit pa on your £45k,there are stated the usual early redemption penaltys, but the Cheshire allow you to redeem the mtg in payment windows @ yrs 6,7,8, with no penalty

The point is if you can overpay, you will pay off earlier thus reducing the total amount of int paid on the loan,which would counteract the worry of win/loose on int rates

MarkyMarkD

... but if you overpay too much, you will owe less than £25k at the 5 year point, so best not to!

Fairdo_2

Worth also considering the Caveat that if you do take a 10 year Fixed (with most 10 year Fixes, not all) you would need to be sure that you do not want to make any changes during that 10 years. (i.e. Paying off sooner, Moving House and needing to alter the borrowing, etc) as a lot of these products are not renowned for their flexibility.