calculating amount when switching mortgage provider

TerraCamp

Hi there, first time MSE forum contributor and first time switcher. We decided to switch providers when our initial period ends in November. The current mortgage is a fixed rate. How do we find out what will be left to pay when the initial period ends so we borrow the right amount?

We know who we want to go with, etc. We thought we were giving them a ballpark sum in principle but now understand that will be the amount borrowed regardless (unless we tell them now we want it to be different). Is there a usual strategy for going under/over the expected amount? The new provider is being completely unhelpful. I'd assumed wrongly that they would calculate it for us. Thanks!

Hoenir

Your mortgage balance will be reducing by a not too dissimilar amount every month. Use this to project forward.  Better to be over than under. Any excess funds can always be repaid when the transaction is completed. There's no precise science. 

penners324

Your Conveyancer will be able to advise of the redemption figure as they will have requested it from your current mortgage company 

Exodi

TerraCamp said:

Hi there, first time MSE forum contributor and first time switcher. We decided to switch providers when our initial period ends in November. The current mortgage is a fixed rate. How do we find out what will be left to pay when the initial period ends so we borrow the right amount?

We know who we want to go with, etc. We thought we were giving them a ballpark sum in principle but now understand that will be the amount borrowed regardless (unless we tell them now we want it to be different). Is there a usual strategy for going under/over the expected amount? The new provider is being completely unhelpful. I'd assumed wrongly that they would calculate it for us. Thanks!

If you have excel you could use the FV function to work this out.

The function works as follows =FV(RATE,NPER,PMT,PV,TYPE)

Rate is per period, so if you were on an interest rate of 3% it would be 0.03/12

Nper (number of periods, in this case months) depending on how precise you want to be could be either 5 (Jul, Aug, Sep, Oct, Nov) or you could do (45626-TODAY())/(365/12) which gives you a closer approximation (45626 is excels notation for 30/11/24).

PMT is your month payment, say 1000

PV is the present value, so your current mortgage balance expressed as a negative, say -200000

Type is when the payment is made in the period, if made on the 1st like mine, it would be 1 (and 0 would be the end of the period).

So to wrap up, if you had a mortgage balance today of £200,000 with an interest rate of 3% and you had a monthly mortgage payment of £1000, you would expect your balance at the end of November to be either:

=FV(0.03/12,5,1000,-200000,1) which equals £197,474.91
(using whole months for simplicity, but you'd want to do this sum on the last day of the month for best accuracy)

or

=FV(0.03/12,(45626-TODAY())/(365/12),1000,-200000,1) which returns £197,493.00
(using a sum that allows for calculation part way through the month, fixed to end of Nov)

Please note this isn't totally 100% exact as it assumes each month is of equal average length whereas obviously some months have more or less days. Lenders will calculate interest daily but the calculation is a lot more complicated. This estimate will be very, very close though.

Exodi

penners324 said:

Your Conveyancer will be able to advise of the redemption figure as they will have requested it from your current mortgage company 

At least in the case of my rate switch last month (different action and lender mind you), my projected balance was just the current balance at the time I applied for the switch. I guess it's because the current mortgage company can not know for certain what the redemption figure would be because it is affected by over-payments (or things like payment holidays).

Of course I think it's perfectly reasonable that they could provide an estimate and cover it with caveats like *assuming no over-payments or payment holidays.

TerraCamp

Thanks for the replies. Okay, I calculate I'm borrowing about a grand over what I need. Not ideal but better than being short!

@penners324 , thanks for the suggestion, but as 

@Exodi said, the conveyancer has said they will only get the current balance for now and will not get the projected balance until much closer to the time, when it will be difficult to get a new agreement. 

As a side note, I hadn't realised I'd be borrowing the money early (although can understand this is necessary) as it seems this increases the cost of the borrowing quite a bit and is a factor to consider when comparing with sticking with your current provider.