I set mortgage rates AMA

[Tempname1234567]

I set the rates on mortgages, it’s kind of interesting and pretty eye opening. Just that with the caveat that anything here isn’t a replacement for real financial advice but feel free to ask me anything :)

I don’t understand what you mean?

@Tempname1234567 Hi, I’ve only just seen your thread this morning, do you mind if I ask a question? It might be slightly adjacent to your area of expertise, but I have always wondered, so will give it a go:

Am i correct in thinking that a standard repayment mortgage still has the interest component front-loaded - so in the earlier years of a mortgage the borrower will be paying mainly interest, and very little of the mortgage payments goes towards the capital, and that over the term (25 years), this gradually shifts si that at the end of the term each monthly payment is mainly capital?

Or is there now an even split - (interest v capital) from day one?

If the mortgage payments are front-loaded to pay down the interest first, doesn’t that then mean that after the end of a fixed term, the borrower will have paid a huge amount of interest, but only a small portion of capital? So the system of having short-term fixes is not actually in the best interests of the borrower? But is massively in the best interests of the lender (as they get proportionally much larger interest payments over the fix period, than they should be) - which surely means that the effective rate over the fix period is much much higher than the headline rate offered?

I have never seen this discussed anywhere - but I remember (on our mortgage maybe 20 years ago), seeing figures of how much was interest and how much was capital, and being very shocked.

I would be very very keen to hear if this is actually the case still?

What's the process and "approval" timeline to change rates? Like, who decides what it should be and who has the final yes/no? Does it happen over a coffee or does it take hours of intense meetings...

And what's the biggest change you ever made in one go?
And (sorry) have you ever made a mistake in the process?

I’m renewing my mortgage and was quoted 3.85%. Then the Iran war happened and within 2 weeks it went up to almost 5%. How can it jump so quickly yet will take so long to come back down. It’s over £200 a month difference which is a big deal to me

Well it rockets up because the markets like stability and predictability and this war was anything but, it’s amazing how the market is responding to twitter.

this war has hit the supply chains hugely and it will cause inflation to spike, that means the Bank of England might need to raise interest rates to get inflation under control so basically the situation won’t unwind quickly

Yeah cap repayment mortgages are front loaded with interest because that’s when the balance is highest so overpaying early can reduce total interest paid.

and no, the fixed rate period doesn’t really impact the amount of capital paid as they just lock in a rate do a certain period of time. Capital repayment is based on the loan term ie 25 yrs

Thanks - so if you switch lender at the end of your 2 year cap, and go for a new mortgage with a new lender, then doesn’t that just shunt you to the start again, where each monthly payment is maybe 95% interest (or 100 % intereat)?

For me, it depends on the urgency and depends on the system, some can done in the day, others take a while to build. So it can be fast or up to a week.

decisioning again depends on the urgency and rationale, some are easy quick wins and sometimes it’s endless talking in circles needlessly often. People often have agendas haha, esp if they want to prioritise certain segments and sometimes this isn’t the wisest strategy.

making a mistake, sure probably, I’m sure there’s minor bits that get picked up and fixed forward along the way, nothing of material impact. A glaring mistake like setting the rates wrong, no. But I’d argue you can’t, that was the position at that moment in time, circumstances changed and you need to revise that position

biggest change… hmm probably past few weeks, worked out the reprice strategy for every LOB in half an hour for immediate effect. That was quite high pressure haha

You wouldn’t be starting again from square one no