End of fixed rate queries

HillmanMinx

Hello

My 5 year fixed rate repayment mortgage, (25 year) with Halifax ends this September so I am currently looking into what to do next. Could someone put me straight on the following:

If I continue on my current mortgage, obviously I will go onto the standard rate in September and the payments per month will be significantly higher than they are now. However, year 6 of the mortgage will mean that I will be starting to repay a reasonable level of capital rather than the virtually all interest that I have been paying up to now. Each year that I continue will mean that I will be paying by proportion, more and more capital and less interest.

If on the other hand, if I decide to shop around and go for another deal, say a 3 year fixed rate with another bank or indeed take one of Halifaxes other products does this mean that I will have to start the interest payments from scratch again.

The RBS mortgage adviser that I spoke to seemed wholly unable or unwilling to answer this question even though I repeated myself four times.

I feel like I may be missing something here as surely if you switch mortgage providers every 5 years, you could end up, after 25 years, paying virtually all interest and make virtually no inroads into your capital repayments.

Please advise.

Many thanks in advance.

robertmckee14

I had also been wondering about this. As you pay mainly interest in the first few years of a mortgage and very little capital, if i remortgage after two years i will be remortgaging for nearly the same amount as when i first took it out (only about £1000 less). Does this mean i have basically wasted the £7000 in interest ive paid.

Am i taking out a new mortgage for the 134,000 of capital that is left or am i moving my complete mortgage total of 134,000 + xxxxx interest to the new provider?

Confused

Rob

beecher

You'll be reducing the term each time, and so your interest payments will reduce accordingly. So you'll be paying a higher proportion in year 6 than you were in year 1, simply because you've reduced the amount outstanding, and the term.

sammyjammy

The interest is worked out on the capital you still owe and the term you are borrowing, if you move your mortgage and keep the term and the amount you borrow the same then assuming the same interest rate your payments would be pretty much identical (taking into account different ways of calculating interest and applying it).

If the new mortgage has a higher interest rate then the amount paid in interest will obviously be higher but there is no getting around that, however this would increase your monthly payment so that the amount of capital repaid would be the same as before to ensure mortgage paid off, hope that makes sense.

Sam

doberryfirkin

These are really great questions and very pertinent to my current situation. Whilst I don't have an answer, I hope that some of the 'experts' do come up with some options to consider. I only wanted to add one further question: If I was to have to choose between paying off a lump sum from a mortgage, would it better to repay an element of a 'repayment' or 'interest only' mortgage. Which would make the biggest impact over the long term?
D

Dick_here

robertmckee14 wrote: »

I had also been wondering about this. As you pay mainly interest in the first few years of a mortgage and very little capital, if i remortgage after two years i will be remortgaging for nearly the same amount as when i first took it out (only about £1000 less). Does this mean i have basically wasted the £7000 in interest ive paid.
Confused

Only if you take out another 25 year term. If you've had a 3 year fix, take out a 22 year term.

robertmckee14

Ok, the penny has dropped now. For some reason i had thought that at the start of a new mortgage you paid more interest, so if i moved my mortgage to another lender i would again pay more interest vs capital until i had been with them a while then the amount of capital paid would increase. I realise now the amount of interest paid each month changes with the total capital balance regardless of switching providers.

I downloaded a piece of software called mortgage advisor which gives you the yearly breakdown of your capital/interest etc. That helped sort it out in my head.

Thanks for the help.

Rob