From: "Brad" 
Newsgroups: uk.finance
Subject: Re: To remortgage or not?
Date: 3 Jul 2006 04:19:00 -0700
   posting-account=RcFVkgwAAAC1AiyW8rGcEL_WBTG7N_bw

Fantastic feedback, thanks Ben & Ron


Ronald Raygun wrote:
> Brad wrote:
>
> > As for some reason, a high proportion of the monthly repayments on a
> > mortgage in the initial years go towards interest payment rather than
> > repaying capital, is it really wise to switch to another mortgage after
> > a two year fixed deal?, surely you are again wasting most of your
> > payments on interest rather than capital all over again each time you
> > remortgage?, or am I on the wrong track.
>
> Yes, you are on the wrong track. [*]
>
> > When you remortgage with the same provider, are you again expected to
> > stump up a huge deposit?, or just the remortgage fees?.
>
> The deposit is the difference between what the house cost to buy and
> how much you are borrowing, so when you remortgage the deposit has already
> been paid, so there is no need to pay it again.  But if your circumstances
> allow, you may prefer to inject some of your savings, in order to reduce
> the total borrowing, and hence your interest payments.
>
> > Seems the chase to get the lowest APR as an obvious benefit is swamped
> > by the high early interest proportion
>
> Nonsense.  The interest proportion is a red herring. [*]
>
> A useful guide is to try to minimise the Total Amount Payable,
> which is always equal to the principal plus the Total Interest
> Payable (TIP).  What if the interest is a high proportion of your
> monthly payment, but the payment itself is very low?  It's the
> actual *amount* of interest you pay that should be of concern,
> not any airy-fairy proportion.
>
> There are two key elements which will help minimise your TIP.
> One is a low interest rate, the other is a *short repayment term*.
> Of course, the shorter the term, for a given interest rate and
> amount borrowed, the higher will be your actual monthly payments,
> so you need to balance how little you want to pay overall with
> how much you can afford each month.
>
> > with the addition of hundreds of
> > pounds in fees just for remortgaging with the same mortgage
> > provider.... what are your thoughts on this?.
>
> The fees are indeed an issue you need to consider when making your decision.
> Work out how much interest the deal would save you over the fixed period
> in question, and see whether it exceeds the sum of all fees involved
> (remember it's not just the remortgage application fee, but there may be
> a valuation fee involved, not to mention legal/registry fees in connection
> with discharging the old and recording the new mortgage.
>
> [*] The high proportion at the beginning is a consequence of the
> perceived need to keep payment level constant throughout the term.
> Interest is always charged on the balance of debt outstanding, and
> this is of course maximal at the outset.  Any amount you pay more
> than interest-only will reduce the debt.  Given equal payments every
> month, the higher you make the payments, the less time it will take
> to clear the loan.  For a give interest rate there is a direct
> relationship between the interest proportion of the payment and the
> number of payments left to be made.
>
> Hence if you switch lenders or products, one thing you *don't* want
> is to re-start a whole new 25-year term.  Instead, try to keep the
> original redemption date fixed, i.e. if you remortgage 5 years into
> a 25-year term, the new term should be for 20 years.