Does portaging save you money?

ftb_2019

Hello all,

I’m soon coming off my fixed rate (next 5 months) and have some questions about looking for a new provider. Should I stick with my existing mortgage and fix it for another 2 years, or does remortgaging actually save you money considering that interest is front-loaded over the principle in the earlier term of the period? Would this not apply to the new mortgage too?

I understand that there are a few variables to consider, such as the starting balance, the actual interest rate, and the term length.

I have 18 years left and an outstanding amount of £388,000~ (LTV 53% at today's valuation) (source: Zoopla).

silvercar

For the same term length, fixed rate and fixed rate length, it would be identical whether you ported your mortgage or stayed with your existing lender. I compare fixed rate length and percentage and allow for any remortgage charges and forget the rest.

ftb_2019

so the new mortgage deal would not be front loaded, and would inherit the same conditions?

kingstreet

Porting only applies when you move. If you take a new product with your existing lender without moving, it's a rate switch, or product transfer. If you take a new mortgage with a new lender to replace the current one on the same property, it's a remortgage.

My knowledge of the Lord Of The Rings tells me "portaging" is eg carrying your canoe from the river, past a waterfall and putting it back in the river on the other side. Predictive text, perhaps?

As silvercar says, you only pay interest on what you owe. It doesn't work like a personal loan where the interest is added at the outset.

ftb_2019

Isn't the interest tapered over the length of the mortgage term? It's more at the beginning of the term than towards the end; as you progress through the term, you begin to tackle more of the principle. 

The title was meant to say mortgage - good old predictive typing - by the time I noticed, it was too late; there isn't an option to edit in this forum.

Does a rate switch and remortgage inherit the same conditions as the original mortgage? 

Hoenir

ftb_2019 said:

 does remortgaging actually save you money considering that interest is front-loaded over the principle in the earlier term of the period? Would this not apply to the new mortgage too?

There's no front loading. Interest is charged on the total amount outstanding at any point in time. As time passes more of your monthly payment will be used to reduce the capital balance owed. Resulting in less interest being charged. A snowball effect. 

MWT

ftb_2019 said:

Isn't the interest tapered over the length of the mortgage term? It's more at the beginning of the term than towards the end; as you progress through the term, you begin to tackle more of the principle. 

Yes, but that is just the consequence of calculating a level payment amount across the term of the mortgage and it would make no difference if you were 5 years into a 25 year mortgage or taking a new mortgage for 20 years for the same amount as was currently remaining on the 25 year mortgage.

In your words, you 'begin to tackle more of the principle' because you've paid off part of that already so the interest amount is lower and so more of your level monthly payment goes towards principal, which reduces that a little faster and then the next month the interest is lower and so on...