Remortgaging - interest payments
Discussion
Hopefully this is a simple question.
When you take out a new mortgage - the interest payments are pre-loaded (i.e. for the first few years, more of your monthly payment goes on mortgage interest payments than on repaying the capital - for argument's sake we'll say 75% of the payment goes on interest 25% on capital).
This tapers down over time and after say 5/7 years, it becomes equalised, then afterwards, a higher percentage of your monthly payment goes towards the capital.
My question is, if you remortgage with the same lender to obtain a more favourable interest rate without extending the outstanding term on your mortgage - does this tapering effect get re-set, or do you continue from the taper point you are currently at?
When you take out a new mortgage - the interest payments are pre-loaded (i.e. for the first few years, more of your monthly payment goes on mortgage interest payments than on repaying the capital - for argument's sake we'll say 75% of the payment goes on interest 25% on capital).
This tapers down over time and after say 5/7 years, it becomes equalised, then afterwards, a higher percentage of your monthly payment goes towards the capital.
My question is, if you remortgage with the same lender to obtain a more favourable interest rate without extending the outstanding term on your mortgage - does this tapering effect get re-set, or do you continue from the taper point you are currently at?
Over the entire term, yes, but in the first few years, if the taper is re-set, the amount of interest you pay with each monthly payment could be higher.
The diagram on this website illustrates what i'm talking about
https://www.which.co.uk/money/mortgages-and-proper...
If my current monthly payments are say 50% interest and 50% capital (because i'm through the high interest part of the taper) - and the taper is re-set, could the first few years of payments end up being say 75% interest and only 25% capital?
If I got a 5 year fixed rate, the interest part of the payments over that first 5 years could be higher than what I am paying now because i'm over the initial high interest part of the taper period. When I come to the end of that 5 year fixed and remortgage again - I could be in a perpetual state of the "high interest" part of the taper.
The diagram on this website illustrates what i'm talking about
https://www.which.co.uk/money/mortgages-and-proper...
If my current monthly payments are say 50% interest and 50% capital (because i'm through the high interest part of the taper) - and the taper is re-set, could the first few years of payments end up being say 75% interest and only 25% capital?
If I got a 5 year fixed rate, the interest part of the payments over that first 5 years could be higher than what I am paying now because i'm over the initial high interest part of the taper period. When I come to the end of that 5 year fixed and remortgage again - I could be in a perpetual state of the "high interest" part of the taper.
Edited by Moonhawk on Wednesday 22 June 20:16
I think the interest you pay against capital is a function of the length of the loan, the longer the repayment period the more the interest is a higher proportion of the amount repaid, as the capital is always the same. If you remortgaged every five years, kept the same period but reduced the interest rate each time, it would take much less rather than more time to repay.
Taper is the wrong word as is preloaded and reset.
You pay interest monthly on the outstanding balance. As this reduces so you pay less interest each month.
This means at the beginning most of your monthly is interest and bit by bit the capital reduces and you pay less interest and more capital.
It couldn’t possibly “reset” unless you borrowed more capital.
The monthly payment might change to take account of a new interest rate or loan period.
You pay interest monthly on the outstanding balance. As this reduces so you pay less interest each month.
This means at the beginning most of your monthly is interest and bit by bit the capital reduces and you pay less interest and more capital.
It couldn’t possibly “reset” unless you borrowed more capital.
The monthly payment might change to take account of a new interest rate or loan period.
You don’t actually “remortgage” when you take a new deal with the same lender, it is just a deed of variation so the lender cannot change anything other than the rate of interest charges.
One way around the front loading of interest and to make it linear is to have interest only and then set up a standing order to repay the capital BuT you need to make sure you actually do it and do pay enough off.
One way around the front loading of interest and to make it linear is to have interest only and then set up a standing order to repay the capital BuT you need to make sure you actually do it and do pay enough off.
Stevemr said:
It’s why overpaying your mortgage is such a good idea.
For example every £100 a month you overpay, is directly off capitol and is a £100 you are not paying interest on for the next 25-35 years.
Look at Halifax overpayment calculator and play around with some figures!
It is interesting to see it (even though we know) but it’s surprising that £10pcm you spend on say EVO could do £x or reduce term by y years For example every £100 a month you overpay, is directly off capitol and is a £100 you are not paying interest on for the next 25-35 years.
Look at Halifax overpayment calculator and play around with some figures!
However clearing debt that is 5 times lower than inflation really isn’t the best choice - it’s a choice and totally safe choice but inflation is now eroding the debt
It's very difficult to get an interest only mortgage under the current lending rules though.
It's also worth bearing in mind that you can have a mortgage that doesn't taper the capital repayment, mine I had the choice of a fixed monthly payment, which is the option where the capital repayment each month is varied as the interest amount falls. I also had the choice of a variable monthly payment, where the capital repayment was simply total capital divided by months of term, with the interset then put on top.
The second option will give you a higher mortgage payment at the start of the mortgage, but the first option means you end up paying more interest, so more money over the term.
in the scenario outlined in the OP, the reduced interest rate should create a lower mortgage payment over the remaining term, which would mean the interest became a lower proportion of the repayment and the rate of taper will change too, but it's not actually changing the capital repayment profile in cash terms.
It's also worth bearing in mind that you can have a mortgage that doesn't taper the capital repayment, mine I had the choice of a fixed monthly payment, which is the option where the capital repayment each month is varied as the interest amount falls. I also had the choice of a variable monthly payment, where the capital repayment was simply total capital divided by months of term, with the interset then put on top.
The second option will give you a higher mortgage payment at the start of the mortgage, but the first option means you end up paying more interest, so more money over the term.
in the scenario outlined in the OP, the reduced interest rate should create a lower mortgage payment over the remaining term, which would mean the interest became a lower proportion of the repayment and the rate of taper will change too, but it's not actually changing the capital repayment profile in cash terms.
Welshbeef said:
but inflation is now eroding the debt
Not really. Inflation in the price of things you buy means you have less money to spend on your mortgage so affordability is getting worse, not better.
The correct metric for your personal borrowing is your own wage inflation, which for most of us isn't going to be anywhere near price inflation. The debt isn't being eroded.
paulrockliffe said:
Welshbeef said:
but inflation is now eroding the debt
Not really. Inflation in the price of things you buy means you have less money to spend on your mortgage so affordability is getting worse, not better.
The correct metric for your personal borrowing is your own wage inflation, which for most of us isn't going to be anywhere near price inflation. The debt isn't being eroded.
So your Debt to asset price is tumbling due to inflation.
You can use the same metric on the UK debt to gdp same sort of thing.
paulrockliffe said:
It's very difficult to get an interest only mortgage under the current lending rules though.
You can get 50% ltv (as long as total loan is under 85%) and 75% if your income is over £250k with Santander as long as you have £250k equity, no min income requirement that most other lenders have.Welshbeef said:
paulrockliffe said:
Welshbeef said:
but inflation is now eroding the debt
Not really. Inflation in the price of things you buy means you have less money to spend on your mortgage so affordability is getting worse, not better.
The correct metric for your personal borrowing is your own wage inflation, which for most of us isn't going to be anywhere near price inflation. The debt isn't being eroded.
So your Debt to asset price is tumbling due to inflation.
You can use the same metric on the UK debt to gdp same sort of thing.
UK debt to GDP isn't the same metric.
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