Re mortgaging - how is the balance calculated?

djwood1

Hello

FTB here just working out the cost of 2/3/5yr fixed deals. Not got as far as an API yet but managed to get an ace broker on side to help push things through once we find our house.

My question is, what's the process in remortgaging after a fixed period to get a better deal? How is the balance calculated?

For example, just looking at this deal (broker has offered better but high street website has full interest / fees for use in this example)

£245k value
£22,500 deposit (90% LTV)
@ 2.74% for 2years
30 years
= 898.37 p/m
Then 4.99% after promotional period.

I'll be switching before the 2yr deal ends, how is my balance calculated? I guess the initial payments cover interest? I assume I'll need equity in the house in order to raise the deposit to switch?

Thanks :-)

ViolaLass

1. When you mortgage, if you change banks, the old bank tells the new bank how much you owe.

2. Is it a repayment mortgage? It concerns me that you only think that this might cover the interest payments.

fudge7000

Paying back that amount, it is a repayment mortgage, so you are paying off capital as well as interest, at the end of 2 years you would owe £211k approximately.
The old bank tell the new bank and you switch over to a new mortgage at a new rate

ThePants999

If you take a fixed rate, you'll be liable for hefty early repayment charges if you leave before the end of the fixed period. You'll want to remortgage when the fixed period ends, not before it.

BTW, I assume you meant £24,500 deposit, otherwise you don't have a 90% LTV.

You'll want to overpay slightly to get to 85% LTV after the fixed period, otherwise remortgaging could be slightly tougher.

djwood1

Sorry, to clear a few things up.

- Yes capital mortgage
- £24500 deposit
- Will overpay circa £500 p/m to reduce terms and build larger equity in house

So if we owe circa £211k after year 2 I guess £12k of the £21k we've paid in 24 installments would be interest?

ThePants999

Sounds about right.

The first month, you'll owe 220,500, and will therefore be charged £503.48 in interest. Your payment of £898.37 is therefore repaying £394.89 of capital. Every month, you owe a little less, so less of the repayment is interest and more of it is capital. 2 years in, you'll have paid off about £10K of capital and about £11K of interest.

Of course, this is all before overpayments, which are (a) all capital and (b) reduce the interest you're paying further.