Equity property appreciation according to mortgage rate

Posted on 10 March 2008

According to different mortgage packages, will the repayment of the capital be at the same time scale (even though the actual monthly repayment amount and TAR will differ)? i.e. will the equity of a property appreciate at the same rate regardless of mortgage if they are the same length of term and assumed to be repayment based?

Yes, assuming the rate is constant. It is the fluctuations in rate throughout the period that alters the gradient of the amortisation curve.

I don't know how much detail you want me to bore you with: is this a just-for-fun question?

If you're comparing two rates, do feel free to send me the rates and the loan amount, and I'll print you the two 25 year amortisation tables ('remaining debt' projections).

Hi Kate,

Thank you for your reply. It is not a "just-for-fun question", but more of a an indepth question to understand the repayment of a future mortgage and which deal would be the most beneficial and trading off different types of mortgages to decide which would be better financially. As you are aware, different rates also attract different product fees so I want to find out which actually makes better sense in the short, medium and long term. I would appreciate if you could provide the amortisation tables that you refer to for 2 mortgages for £150,000 over 25 years at 5% and 6%. Is there somewhere where I can obtain a spreadsheet to calculate different circumstances and possible effects of overpayment?

Best regards

Hi C,

I can only do real mortgage rates I'm afraid, it's not a spreadsheet- we have a real system based on all the real rates in the UK.  As there is no such thing as a 5% for term, or a 6% for term currently, I attach the closest I could get, for 4.99% for 2 years followed by the lenders' standard variable rate,  and one for 5.99%, followed by lenders standard variable rate. Please note that these are illustrations only, they are not quotations, Charcol is not recommending these products and by no means should you assume that they are available to you at this time.

In case you were not aware, a broker is obliged to give you costing for the cost of any recommended mortgages for (a) the term of the mortgage and (b) the projected few years you are going to keep it.  The costing you're after is called the 'TAP' - meaning Total Amount Payable.  I suggest you put your trust into a broker, as this is a lot of complicated leg work for you, when you could simply be taking advantage of a fees-free service.  The number for Charcol is 0800 358 55 60.

The attached illustrations will be useless to you in real terms, because anyone would remortgage after the initial beneficial rate is up,  and as you don't know what rate would be available to move on to in two years' time, the best you can do is ensure that the deal you chose is the lowest cost (interest plus fees) for the two years you keep the deal.  If you stick to that rule every time you remortgage, it follows that you will always have had the cheapest cost.

The only alternative really, is whether you would prefer to take a ten year fix, for example. These can be better value in terms of regular cost, but have restrictions.

Here is my commentary on long term fixes:

Pros:

 

• Suit many people who want security of budget or think rates will increase in long run

• No stress or hassle of remortgaging paperwork & credit scores every 2 or so years

• Save a considerable amount in legal, valuation and arrangement fees every few years

• Arrangement fees excellent value as pay for ten years (or more) of rate

• Most lenders with 25 year deals offer get out clause at 10 years making it a 10 year fix with option to stay on the rate for last 15 years

• Ideal for the pre-retirement 10 years when you want to set yourself a budget to finish off the mortgage in ten years.

Cons:

• Commitment for long term: punitive Early Repayment Charges

• Portability- can't be trusted. Not many people know that it is 'subject to terms and conditions' - which means full underwriting normally. So if you have gone down to 1 income (wife off for baby) or moved jobs in last 3 months (like a relocation) or gone self-employed (maybe moving to bigger house for work space) you probably can't port. Even if you have kept payments up fine. As you can see, tends to happen when you most need to!  I get a lot of reader letters about this.

• Portability: Many lenders (Halifax plus others) stipulate you have to porton the day.  Non-simultaneous completions if you move, result in full penalty. Woolwich allows 6 months between sell and buy.  Important to consider how likely it is you may need to move, and why.

• If want to borrow more for a project - people normally time this for their next 2 year remortgage, and get it on that good rate. With a long term fix, however, you have to take the best further advance rate they can offer you, which is often higher.

And here is the link for where to find the overpayment calculator on Charcol's site:
http://www.charcol.co.uk/knowledge-resources/calculators/flexible-mortgage/

For any more detail, you need to start selecting specific mortgage products for comparison, or have a broker do it for you and show you the logic process for selection.

Hope all this helps,

Best regards,

Katie

Category: Current rates & the market

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