Lowering term of mortgage buy continually re-mortgaging
Discussion
Something was pointed out to us (me and my wife) today that we have never thought of.
Say you take out a mortgage over a 30 year term, and fix for 2 years. At the end of the 2 years, shop around for another mortgage / deal and reduce the term by a year, so rather than 28 years do it over 27 years. Fix in again for 2 years, and then when that one ends, shop around again, and lower it again, so rather than the now 25 years left to pay, re-mortgage for 24 years.
Effectively what happens, or we are led to believe will happen, is you reduce a 30 year mortgage to 20 years, and every couple of years you can improve your payments / avoid a sharp rise in monthly payment, assuming the deals are there for that to be possible.
Even if you were to pay a mortgage consultant a £500 fee every 2 years for arranging this, over the term of the mortgage, you have saved 10 years worth of payments and saved a shed load more money than it costs to arrange.
Forgive me for being thick, as we have never even thought of this, but it seems like a no brainer. Are there any obvious downfalls to this method that I am missing?
Say you take out a mortgage over a 30 year term, and fix for 2 years. At the end of the 2 years, shop around for another mortgage / deal and reduce the term by a year, so rather than 28 years do it over 27 years. Fix in again for 2 years, and then when that one ends, shop around again, and lower it again, so rather than the now 25 years left to pay, re-mortgage for 24 years.
Effectively what happens, or we are led to believe will happen, is you reduce a 30 year mortgage to 20 years, and every couple of years you can improve your payments / avoid a sharp rise in monthly payment, assuming the deals are there for that to be possible.
Even if you were to pay a mortgage consultant a £500 fee every 2 years for arranging this, over the term of the mortgage, you have saved 10 years worth of payments and saved a shed load more money than it costs to arrange.
Forgive me for being thick, as we have never even thought of this, but it seems like a no brainer. Are there any obvious downfalls to this method that I am missing?
Arrangement fees for the re-mortgage? Good fixes to new customers often have a fee attached....
I do something similar for my mortgage, whenever a fixed-rate ends I swap to a new rate and reduce the term at the same time, if the new fixed-rate is lower....which is has been for a while (odd situation, given where interest rates are).
Broadly, paying extra monthly is a terrific investment, and massively reduces the mortgage term for C&I mortgages. Well worth doing irrespective of the product - most lenders allow 10% overpayments per annum without penalty, irrespective of the product.
I do something similar for my mortgage, whenever a fixed-rate ends I swap to a new rate and reduce the term at the same time, if the new fixed-rate is lower....which is has been for a while (odd situation, given where interest rates are).
Broadly, paying extra monthly is a terrific investment, and massively reduces the mortgage term for C&I mortgages. Well worth doing irrespective of the product - most lenders allow 10% overpayments per annum without penalty, irrespective of the product.
We paid off a 25 year one in nine years, just by overpaying. We left the monthly bit alone and every couple of months or so made another payment against it. There was no need then to reorganise the mortgage. Just had to be a bit careful to make sure that you triggered an interest recalculation when we made another payment on it.
Our income isn't high enough to substantially over pay, things will be extremely tight as it is when we do borrow.
I asked about the arrangement fee's, the advisor stated there are plenty of no fee options which remove these. Ultimatley I don't see why I can't just research it myself and organise a mortgage swap over personally every 2 years and decrease the term, thus removing the need for the mortgage advisor at all!
I asked about the arrangement fee's, the advisor stated there are plenty of no fee options which remove these. Ultimatley I don't see why I can't just research it myself and organise a mortgage swap over personally every 2 years and decrease the term, thus removing the need for the mortgage advisor at all!
Dizeee said:
Our income isn't high enough to substantially over pay, things will be extremely tight as it is when we do borrow.
I asked about the arrangement fee's, the advisor stated there are plenty of no fee options which remove these. Ultimatley I don't see why I can't just research it myself and organise a mortgage swap over personally every 2 years and decrease the term, thus removing the need for the mortgage advisor at all!
You are aware that by reducing the mortgage term you will increase the monthly repayments?I asked about the arrangement fee's, the advisor stated there are plenty of no fee options which remove these. Ultimatley I don't see why I can't just research it myself and organise a mortgage swap over personally every 2 years and decrease the term, thus removing the need for the mortgage advisor at all!
You be better off getting a decent rate & overpaying on the existing mortgage & chucking the arrangement fees/valuation fees/ product fees back into paying off the original loan.
Dizeee said:
Our income isn't high enough to substantially over pay, things will be extremely tight as it is when we do borrow.
It makes a massive difference even if you overpay a tiny amount.A 100,000 mortgage at 4% a year over 25 years will cost around £500 a month. If you overpay by £10 a month you'll pay the mortgage off around 10 months early.
vescaegg said:
The ones with no fees will have higher monthly payments. If you remortgage say every 2 years, you will prob not pay as much I guess but will still need a solicitor to do stuff and that'll cost.
Can't see why a solicitor needs to be involved in re mortgaging. They have had no involvement when we have done it in the past.fridaypassion said:
If you stick with the same lender you can normally just renegotiate fixes. The only time we have had to go through revaluing has been when we have moved lender.
Problem being, we fixed in last year as we were not expecting to be able to move. As such I liased with them, and they will not give us the mortgage we require. Not even remotely. Naturally,everywhere else will. As such we are going to have to swallow £10k in penalties to repay it early and take out a mortgage on another house.Dizeee said:
Can't see why a solicitor needs to be involved in re mortgaging. They have had no involvement when we have done it in the past.
Not sure how it works if you're rate staying with the same lender as it may count as just switching product (Sarnie?) but if you move lenders then yes a solicitor needs to be involved to remove the charges on the house from one lender and give it to the other. You cannot do it yourself. The banks need copies of the house docs etc which a solicitor generally keeps. vescaegg said:
Not sure how it works if you're rate staying with the same lender as it may count as just switching product (Sarnie?) but if you move lenders then yes a solicitor needs to be involved to remove the charges on the house from one lender and give it to the other. You cannot do it yourself. The banks need copies of the house docs etc which a solicitor generally keeps.
Oh. Didn't know that!darreni said:
Dizeee said:
Our income isn't high enough to substantially over pay, things will be extremely tight as it is when we do borrow.
I asked about the arrangement fee's, the advisor stated there are plenty of no fee options which remove these. Ultimatley I don't see why I can't just research it myself and organise a mortgage swap over personally every 2 years and decrease the term, thus removing the need for the mortgage advisor at all!
You are aware that by reducing the mortgage term you will increase the monthly repayments?I asked about the arrangement fee's, the advisor stated there are plenty of no fee options which remove these. Ultimatley I don't see why I can't just research it myself and organise a mortgage swap over personally every 2 years and decrease the term, thus removing the need for the mortgage advisor at all!
Personally I use an offset mortgage so that I can pay what I want, when I want, and still have access to every penny if I want it.
I'm about to do this, but slightly different circumstance. I got a mortgage over 35 years on a 90% LTV. I renovated the house and the LTV is now just under 70%. My 2 year fix at 4.29% is up in February and I've already talked to the banks about remortgaging or changing product with existing provider. The term will drop to 25 years (so wiped 10 years off my current mortgage) but the rate will drop to 1.99% due to the LTV, which cuts about £80 per month from my current payment. So I'll reduce the term by 10 years AND reduce the monthly figure which means with my over payments it'll still be overall a lot cheaper, allowing me to over pay more.
I can't see how it would work though if you don't increase the LTV and more importantly decrease the interest rate, if you switch from a 1.99% to a 1.99% then surely you're not really going to achieve much other than fixing the rate for a couple of years?! Or you'll be paying slightly more each year but reducing the term, could essentially do the same with over payments?
I can't see how it would work though if you don't increase the LTV and more importantly decrease the interest rate, if you switch from a 1.99% to a 1.99% then surely you're not really going to achieve much other than fixing the rate for a couple of years?! Or you'll be paying slightly more each year but reducing the term, could essentially do the same with over payments?
swerni said:
This .
James, assuming the same interest rate, reducing the term just increases your monthly payment each time you do it.
Either repay slightly or as elise said, get am offset.
The person who benefits most from you changing product every couple of years is the broker. ( assuming no decrease in the interest rates)
Exactly. When you make a payment, particularly early on, it could be that £95 of £100 is paying interest and the amount you owe is lowering ever so slightly. Hence in early years your reduction in the amount you owe is only declining ever so slightly.James, assuming the same interest rate, reducing the term just increases your monthly payment each time you do it.
Either repay slightly or as elise said, get am offset.
The person who benefits most from you changing product every couple of years is the broker. ( assuming no decrease in the interest rates)
But pay an extra £10 and that is all off the amount you own, it not only reduces it, it also means that your regular amount it will/should start paying off a little more each time. So your £100 may pay off £5.10 of the load rather than £5.00 and so on.
And it escalated, hence the reason I paid off a 25 year loan in 9 years, we saved up and every few months made an additional payment to them and after each one our monthly payment paid off more capital and less interest.
Of course, that was in the 1990's, back on a deliberately simple mortgage that were happy at us doing it, but personally I'd have no hesitation at doing that sort of route over complex fee based mechanisms being described.
Dizeee said:
Problem being, we fixed in last year as we were not expecting to be able to move. As such I liased with them, and they will not give us the mortgage we require. Not even remotely. Naturally,everywhere else will. As such we are going to have to swallow £10k in penalties to repay it early and take out a mortgage on another house.
We had a bit of a similar thing when the Yorkshire refused us a remortgage because my Mrs had gone part time. Amazingly for a financial institution they actually over rode the computer generated answer when they realised we had been fine for 15 years and at the time 2 years of the Mrs being part time without them knowing. swerni said:
This .
James, assuming the same interest rate, reducing the term just increases your monthly payment each time you do it.
Either repay slightly or as elise said, get am offset.
The person who benefits most from you changing product every couple of years is the broker. ( assuming no decrease in the interest rates)
How does an offset mortgage work?James, assuming the same interest rate, reducing the term just increases your monthly payment each time you do it.
Either repay slightly or as elise said, get am offset.
The person who benefits most from you changing product every couple of years is the broker. ( assuming no decrease in the interest rates)
MrSparks said:
My 2 year fix at 4.29% is up in February and I've already talked to the banks about remortgaging or changing product with existing provider. The term will drop to 25 years (so wiped 10 years off my current mortgage) but the rate will drop to 1.99% due to the LTV, which cuts about £80 per month from my current payment. So I'll reduce the term by 10 years AND reduce the monthly figure which means with my over payments it'll still be overall a lot cheaper, allowing me to over pay more.
This is essentially the exact scenario that we have been advised is easily achievable - notwithstanding the arrangement fee on the mortgage + broker fee (if we used a broker).Gassing Station | Business | Top of Page | What's New | My Stuff