A few mortgage questions.

gcamac

Hello all,

We are thinking of taking a mortgage out with Bank of Scotland Halifax. We’ve been offered what we need and would be at 4.69% on 10% deposit of £194,995 house (new build) for 38 years. Their initial period is 2 years fixed at this rate.

1). When it comes time to set another fixed term after the 2 years is up (or go with a variable rate), is the rate always higher by default thereafter (assuming the base rate etc did not rise during this period)?

2). We were given the top credit score rating when we went in to see what we could get mortgage wise, but I was told by another bank that if I wanted to see what they could offer, they would need to do another credit check, and this could negatively effect our credit score, even though nothing bad has happened.
- how would this affect our credit score?
- how do you reverse such a negative?
- do these negatives get wiped or reset after x years or months?

3). Initially we thought the yearly rate would be lower, but when we said it was a new build, they put the rate up to 4.69%. Can you tell me why they might increase this for a new build?

4). If the amount we pay each month at 4.69% is £825.24 (£685.89 in interest and £139.84 toward the loan), and we want to overpay £200 extra per month, I’m confused as to how to calculate how much of this goes toward the loan portion. It would be nice to see how much extra we would have paid off of the loan after say 5 years (not the interest, just the loan, so we can see how much we might get back if we sold it). I hope this makes sense.

Any thoughts and help on the questions are appreciated. We’re first time buyers and new to mortgages!

Thanks,
gcamac

ACG

1) No. It will depend on the lender and the market at the time and what your terms state.

2) Multiple credit searches can knock your score. If you have 2 credit searches in quick succession but yourr credit report is otherwise good then its unlikely to have too much of an impact. Halifax is only a soft footprint anyway at DIP stage, meaning the only people who can see it are you and them. Time is the greatest healer for bad credit, but you will not go from good to bad because of 2 credit searches.

3)Ask the lender?

4) Interest paid is never the same each month. It depends on the balance, how many days in the month, when you make payments etc.

snowscreamer

With regard to the overpayment, you may find MSE's overpayment calculator useful?

http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator


The calculator suggests that were your rate to stay the same for the entire term of £170k mortgage over 35 years (this is obviously simplistic) then with £200/month constant overpayment you would clear the balance after 22 years, knocking 13 years off the mortgage.

JustinR1979

That calculator is a big eye opener, spurs you on to whack in the overpayments.

gcamac

Thanks everyone. Really appreciate the replies. So is the overpayment only going toward paying off the interest portion, or going toward paying off the next months interest? From what I gather, if you pay it before they recalculate the interest due for the next month, then it reduces what you need to pay next month?

I'm not too sure how this works.

ACG

It will depend on the lender/deal you have.

Some (most) mortgages charge interest daily, so the sooner you overpay the sooner you stop incurring interest on that portion of the loan and you reduce the balance.

Some deals charge interest annually, meaning you are best leaving the money in your bank account earning interest and paying it off at the end of the year... which may not be December.

snowscreamer

Each month, you pay one month's worth of interest on the total capital remaining, plus some capital. The following month, as you have paid off some capital in your previous payment, the total capital remaining is reduced. Therefore the monthly interest on that is reduced (assuming the same interest rate). The payment is the same, but the interest is reduced so each month the proportion of your mortgage payment which goes towards capital is increased. Here is a simplistic example:

Mortgage of £3000, over 3 months. Annual interest rate 12% (monthly interest rate 1%). Monthly payment of £1020.07

Month 1: Interest of 1% on £3000 = £30
Capital repayment = £1020.07 - £30 = £990.07
Month 2: Interest of 1% on remaining balance (£2009.93) = £20.10
Capital repayment = £1020.07 - £20.10 = £999.97
Month 3: Interest of 1% on remaining balance (£1009.96) = £10.10
Capital repayment = £1020.07 - £10.10 = £1009.97: clears the balance

So interest keeps going down and so if you are paying the same amount the amount of capital being repaid will go up each month. As you pay off the interest due each month in full, any overpayment will go 100% towards the capital repayment and therefore the amount of interest due in subsequent months will go down, and you'll pay it off quicker. Let's redo my example above but this time increase the monthly payment to £2000

Month 1: Interest of 1% on £3000 = £30
Capital repayment = £2000 - £30 = £1970
Month 2: Interest of 1% on remaining balance (£1030) = £10.30
Capital repayment = £1030: clears the balance

Still clear as mud or does that help?

Thrugelmir

gcamac wrote: »

we can see how much we might get back if we sold it

What will house prices do over the next 5 years?

Arguably rising interest rates (if they do) would bring downward pressure to bare.

dimbo61

You are looking a " New Build" and like a new car they often lose money in the first couple of years!
Builders tend to ask more for say a NEW 4 Bed detached house than the 25/50 year old 4 bed detached house round the corner.
The also offer discounts to attract buyers such as fencing, carpets, curtains, better kitchen/bathrooms rather than offer money off the price.
Once you nice new home is 4/5 years old and the paintwork is worn and dirty and the builder is offering brand new ones round the corner you may get less than you paid for IT

gcamac

Thanks very much, that really helps visualise it. Good to know, since the standard amount we pay each month pays off that months interest (+ some loan), that anything overpaid on top goes direct toward the loan amount reduction. Amazing on the link provided to see how much sooner you can pay off your mortgage with overpayments (and how much you save on interest). At £200 a month we won't hit the 10% maximum per year any time soon either.

Thanks everyone once again.

dimbo61

Are you going to live in this house for only 2 years? rates will be higher in 2 years ( I think!!)
If you plan on staying for at least 5 years why not consider a 5 year fix or offset and save into the offset account ( emergency savings)