Question about fixed rate mortgages

[Sunshine49]

This is probably a really stupid question, but here goes! (Figures are purely theoretical by the way, so the maths may be a little out).

Say you took out a mortgage of £300k at 70% loan to value on a £430k property, on a fixed rate for five years. When you get to the end of the five-year term, let's say you have £260k still to pay off (which means you're now at 60% loan to value, assuming your house is still worth exactly the same as you paid for it!)

If you want to secure another five-year fixed term at this point, how does the bank calculate the new figure? Do they offer you new rates on the basis of a 60% LTV rate, or is every future fixed rate deal based on the initial 70% LTV that you began with?

Thanks!

The LTV ratio decreases as you pay more off. So you remortgage with the 60% value.

Hi @BergamotMouse - thanks for the swift reply! So the mortgage should get steadily easier to pay over time (assuming interest rates stay low - which I know is a massive "if"!)

Also they’ll have a ‘value’ of your house in 5 years which will hopefully be more than you paid for it which may increase your LTV

Always worth shopping around though at the end of your deal - don't just take what the bank offers you!

Thanks Worieddd - I didn't realise they do that! So if you buy in an area where house prices happen to rocket up over five years, does that mean you could really benefit when it comes to refixing, as your LTV % would be significantly less than what it would have been if your house had stayed the same value?

Also just realised the mortgage payments won't actually get steadily easier over time, as obviously the length of your full mortgage term will be five years less each time you fix (assuming you take out a five-year term each time)! facepalm

@Sunshine49 you are usually eligible for lower interest rates as your LTV decreases which will probably help a little, presuming rates don't rocket,

So if you buy in an area where house prices happen to rocket up over five years, does that mean you could really benefit when it comes to refixing, as your LTV % would be significantly less than what it would have been if your house had stayed the same value?

Yes you will typically get a better rate if your LTV decreased from 90% to 60%.

Thanks @serbska. Had no idea the bank revalue the house before offering a new fixed-rate deal. I definitely need to get more clued up!

Yes generally your mortgage gets easier to pay over time, especially when you pass those magical brackets (under the 60% LTV). If you are in a job that gets inflationary payrises (rare I know) then your mortgage will get easier that way as it should theoretically remain a fixed amount to pay.

Thanks @hidden - that's good to know! Sadly inflationary payrises don't apply to me, but I think I will be at the 60% threshold when my first fixed term comes to an end - so that's something!

Yes that’s correct. We bought our house for £213K in 2015 but Nationwide have valued it at £242K which has increased our LTV (we’ve just fixed at a 5 year deal)