Mortgage statement came through and it’s depressing reading

[Onedropbeat]

Bought 4 years ago and ideally need to move or extend as there’s now 4 of us in a 2 bed cottage

In the last 12 months we have paid £10200 but the amount that has come off the mortgage after interest has been applied is just £3000

Our interest rate is the best we could get at 1.79%

Earnings aren’t going to increase any time soon because of Covid so it looks like we will be stuck for years before affording to increase the mortgage borrowing

It feels hardly better off than renting at this rate and I’m sad I’m subjecting the children to share for the foreseeable future

I cannot recommend the Martin Lewis mortgage pages and comparisons enough, have saved me thousands and I now know what all the jargon means so feel much more confident about these things. I have a plan and I'm sticking to it and seeing the rewards.

If you were in rented you wouldn't have the security that comes with ownership. Ive just got my family out of rented and into our own home and the relief is enormous! That is worth something.

We use London & Country when we re-mortgage, they are independent , recommended by Martin Lewis & best of all free. They have access to deals us regular folk don't as well, our last 2 mortgages haven't had any fees but we got £500 cash back each time.

Check there isn't a penalty for overpaying!

@Onedropbeat are you sure you are reading your mortgage statement correctly? I've just done the maths and assuming you are on a normal repayment rate you should be paying off over 6k of capital a year. Could the 3k be the interest you have paid ? Alternatively are you on a reduced rate or have your mortgage and other fees added to the loan been paid off first ? If it's not clear you should ask your provider for a breakdown of how much capital and how much interest you pay of each month. With payments like this and the interest rate stated it doesn't make sense that you have only paid 3k

[quote quinquereme]@Onedropbeat are you sure you are reading your mortgage statement correctly? I've just done the maths and assuming you are on a normal repayment rate you should be paying off over 6k of capital a year. Could the 3k be the interest you have paid ? Alternatively are you on a reduced rate or have your mortgage and other fees added to the loan been paid off first ? If it's not clear you should ask your provider for a breakdown of how much capital and how much interest you pay of each month. With payments like this and the interest rate stated it doesn't make sense that you have only paid 3k[/quote]
That’s what I expected it to be more like

I’d worked out that it should be paying off about £6k a year

Il take another look at the statement again

Based on those figures you owe over £400k and the house will be worth around half a million for a two bed cottage. Is there any possibility of relocating? Agree with the advice to overpay or save up to extend as next best option. Do you expect to receive any lump sum windfalls in the next few years?

wrt mortgage fees it pays to get the calculator out.
when we re mortgaged we had the choice between not paying a fee but a higher % repayment or to pay a couple of hundred in fees.
over the term (2years in our case) the 'no fee' option would have been a couple of grand more expensive.

@redcandlelight

wrt mortgage fees it pays to get the calculator out. when we re mortgaged we had the choice between not paying a fee but a higher % repayment or to pay a couple of hundred in fees. over the term (2years in our case) the 'no fee' option would have been a couple of grand more expensive.

It was the same for us this time too, it was cheaper to have a 1.5% interest rate with no fee than 0.9% with an arrangement fee.

That is on.money saving expert too on their mortgage calculator

"Hardly feels better than renting"
This is the reason I rent, I prefer it. In your position, needing more room, I'd just find a nicer and bigger rental property, dead easy.

Yes, if you stick at a mortgage you will eventually have the security of owning your own home, but at a huge 'cost' in terms of sacrifices over a number of years in order to do so....by then the family has grown up or whatever....

I'm now semi-retired and will retire fully in a couple of years. Still renting, free to keep my current place or move on whenever I wish. Money freed up to give to the children instead of them waiting until I die to get their hands on a property to sell. When I go, nothing to sort out in terms of selling somewhere.

Yes, I know most people don't agree with me, but just putting the alternative viewpoint to balance the discussion.

The figures don't sound quite right to me, are you sure that you only paid off £3k?

Your mortgage deal sounds pretty good tbh, always worth shopping around but I think you've already got quite a good rate.

The less you owe the lower the interest payments as the capital reduces.

No, this isn’t how it works. The interest on a repayment mortgage is calculated over the life of the mortgage and allocated over the term. As other posters noted upthread, in the early years what you are paying is mostly interest, whereas in the later years it is mostly capital.

Where you choose a longer mortgage term (35 years!! Christ), the interest is going to be higher, and the amount of capital reduced in the early years smaller.

@Iamthewombat

The less you owe the lower the interest payments as the capital reduces.

No, this isn’t how it works. The interest on a repayment mortgage is calculated over the life of the mortgage and allocated over the term. As other posters noted upthread, in the early years what you are paying is mostly interest, whereas in the later years it is mostly capital.

Where you choose a longer mortgage term (35 years!! Christ), the interest is going to be higher, and the amount of capital reduced in the early years smaller.

Yes that is how it works.

Simplified example (calculated over the year and ignorning monthly differences): say you owe £100k at a rate of 2% and repay £400pcm. In year one you will repay £4,800 of which £2000 will be interest and £2,800 capital repayment. In year 2 you therefore owe £97,200 and again repay £4,800 of which £1,944 will be interest and £2,856 capital. Each year (month) you pay more of the capital back and therefore pay less interest as you owe less. Exactly the same as any other loan.

I remortgage every 5 years and funnily enough, I've just done it again.

I always use L&C Mortgage brokers as Martin Lewis recommends them and they're free. It's so quick and easy, they do all the work and all you have to do is scan and send the paperwork (proof of earnings etc).

www.landc.co.uk/?ICID=PPCbrand&gclid=EAIaIQobChMIh8C1uLOo7gIV2e3tCh1rBwPUEAAYASAAEgK6C_D_BwE

Definitely overpay. It makes a real difference, especially near the start of your mortgage term. You’ll be mortgage free one day & own a 500k+ house, so think how good that will feel.

Also, there’s nothing wrong with children sharing. I loved sharing with my sister-I realise not all children enjoy it though.

@blue25

Definitely overpay. It makes a real difference, especially near the start of your mortgage term. You’ll be mortgage free one day & own a 500k+ house, so think how good that will feel.

Also, there’s nothing wrong with children sharing. I loved sharing with my sister-I realise not all children enjoy it though.

Thank you

They do like sharing at the moment

I just worry about the future, then again I guess we never know what the future holds

You say you keep worrying about the future...what specifically? Do you have good amount of savings for emergency/ redundancy?

Personally I'd be looking to reduce the term because your paying more interest over the long term.

When I had a tracker mortgage I made overpayment and thank god I did because I was made redundant and I think because I had a tracker mortgage I was allowed to use my overpayment to pay half my mortgage for 2 months whilst I found a new job, which meant I managed to keep my house as my redundancy pay wasnt much. I dont think if you have a fixed mortgage and overpay your allowed to do that 🤔

I don’t know @cyclingmad

I’m a bit of a catastrophiser made worse because DH never worries at all and previous exh gambled a lot of money away without me knowing so I’ve been quite a worrier ever since
I guess I’m worrying in case we both lost our jobs, or if something else terrible happened that hit us.
After 2020 it’s made me worse as I thought I had all insurances covered and was as stable as we could be but it’s shown that it can be unbalanced at any point and has made me nervous to increase borrowing without a decent buffer

We have emergency fund savings so that’s something

My aim is to get the mortgage down to 25 years when we renew our deal at the end of the year
I just hope my job holds on so we get the affordability required.

I think you need a sense of perspective here.

You have a fabulous interest rate. I bought in 2006 and my first rate was nearly 7%. In the 80s rates got up to 15%. You’re paying a lot of interest now but that’ll go down.

You’ve got £100k equity in your property. I’ve owned since 2006 and my house is worth exactly what I paid for it, even though I put in central heating and double glazing and have decorated throughout.

It’s not the end of the world for kids to share. A stable home is what they need.

Why are you looking to borrow more money? If you want to move is £100k equity plus whatever you can borrow not enough?

You can normally overpay by 10% every year with no penalty but check with your lender first. 35 years is normal when you first take out your mortgage - as your LTV gap increases, your rate will decrease, and as your life progresses and you get pay rises or move jobs or kids grow up - then you have reduce the term length or increase your overpayments.

Oh and regarding renewing your rate, you normally don’t have to go through the affordability checks if you stay with your current lender. They’ll do a desktop valuation, tell you your loan to value, you choose a rate to swap to and they’ll tell you your monthly payment. You can reduce the term normally with no penalty and few checks at this point so long as the new payment will be the same or lower as your old one.

I disagree with going through a broker - they're sharks!

We were about to remortgage through a broker when I happened to go into a branch of LLoyds to get copies of some bank account documents they needed.

Two hours later I'd secured a bigger remortgage with Lloyds for less monthly payments than the broker's quote. It really does pay IME to cut out brokers and go straight to the lender!

I also disagree with using a broker, but I haven't needed to remortgage in about 13 years because at the time, I knew what I wanted, specified this to the broker, they came up with a completely different, inferior product, so I went directly to a bank, got what I wanted.

It was much cheaper at the time, and is far far cheaper now, as it's a lifetime tracker that's currently under 0.5% pa.

Maybe if your circumstances are 'difficult' eg self employed or high loan to value etc, it can be worth using a broker, but for more straightforward cases, it's probably worth seeing what is available yourself.

After all, all the admin of swapping and changing mortgages every 2-5 years and fees or commission to brokers just adds to the cost to the customer. In most cases, it also costs more and introduces inflexibility, to go with a fixed rate.

I must admit I was a bit surprised when I got my first mortgage statement and saw how much interest I am paying. It is an incentive to overpay. I have a very long term but flexibility to overpay- that way I know I can use the money if needed. With mine you overpay but the money sits alingside the mortgage and can be used to take a payment break in future. I have to overpay 3+minths in one go to get a reduction in monthly payment but little a month helps. To be honest I started to overpay less than 10 pounds a month that would reduce the term, MSE is really good for seeing the difference on the calculator. Then a few months later I increased it. Circumstances change and I am hoping to increase again soon.

If you have savings for emergencies then I would not worry so much.

I get it though covid and job stability has shaken me and only emphasised to me to ensure I have a decent emergency pot of savings. I'm building mine up to have a years worth of mortgage + bills.

I felt like you did in first 4 years of my mortgage and I've got it for 25yrs! I'm at 8yra now and its starting to feel like I'm getting closer.

Honestly I'd look to reduce the term if I were you. Nothing like being mortgage free to feel ultimately safe that you'll at least have a roof over your head.

Just keep saving.

I stupidly cancelled my income protection insurance literally 3 months before covid hit oh how I wish I had kept it but once covid is over and those products are back on the market I'll look to take one out as it only cost me theb £40 a per month which is only one mortgage payment in a year but peace of mind

we kept the long term (and low interest rate) but overpay by a chunk each year (work bonus).
after a few years it makes a huge difference in monthly payments. we keep overpaying and calculated that by doing so we are due to pay off a good few years early. plus we have the flexibility to pay 'just' the repayment in case we have unforeseen bills.