I’m a mortgage tart!

Hi Gillian

The title of your post really made me smile and brought back happy memories of when I was a broker myself. We loved mortgage tarts, or rate tarts as we used to refer to them.

Pre-credit crunch when lender fees were low and rates were very heavily discounting it made sense to keep switching.

Lenders have got wise to that now though and have made it far less attractive for "rate tarting". Ooooooo I do love saying rate tarting - LOL

The logic of the regulators is based on good practice for home-owners and sadly, as landlords only make up around 12.5% of mortgages in the UK we got overlooked - AGAIN!

The theory is that we should all pay off our mortgages by the time we retire. Given that most people can only do that by paying a bit extra every month over several years that's what the regulators decided everybody would do.

I feel your pain on that one!

On my own home I now have a very uncompetitive SVR and based on rates alone it seems to make sense to change. However, I would have to switch from interest only to repayment and pay huge fees to do so. The result is that I would be worse off in cashflow terms and I'd also have a much bigger mortgage by the time the lenders fees were added. That's assuming I could even refinance my home too. I remortgaged it up to the hilt in 2008 when I got divorced. at that time LTV and lending criteria were much better too.

In short - I feel your pain!
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Hi Gillian,

I am actually qualified as in by exams with Cemap and FPC1,2 and 3, but no longer practicing to give mortgage advice.

You should not act upon any advice given to you including mine unless it is by an authorised and regulated adviser under the FCA after having completed a full fact find of all your financial circumstances.

What I would say in general terms is that your repayment method (capital and interest or interest only) is or should be independent of your mortgage interest rate.

Therefore if you wish to swap to a repayment mortgage on your main residence this should not be an issue. However swapping back to interest only can be difficult as you need proof of a repayment vehicle that the lender is happy with so permission may not be granted.

On a repayment mortgage you pay one amount X that is calculated so that the interest amount charged I plus a repayment figure R repays the loan at the end of the term.

The amount you repay is exponential so it is a small amount at the start

eg I is large and R small

Until the ratio of I and R is reversed towards the end of the term

eg I is small and R is large.

All the while your payment X stays the same through out the term

I hope that helps a little

So Neil it appears you're saying pretty much what I thought: every time you start a new mortgage to take advantage of low rates you lose any payments you've paid towards the capital on your previous mortgage if you have a repayment mortgage.

Therefore if you do want to pay your mortgage down, or can't get and interest only you need to bite the bullet and stick with a SVR once the deal expires.

Reply to the comment left by "Gillian Schifreen " at "26/08/2013 - 09:33":

You don't lose those capital repayment Gillian, the mortgage will have reduced a bit.

I'm sticking with my SVR for now as I don't have much choice really. I have faith in property values increasing and interest rates margins falling though so I'm waiting for that to happen. At that point I will take a view on whether it is worth switching. If I can at least keep my payments at the same level but slowly reduce my capital balance over time that will make sense. What I would prefer, of course, is to remortgage to a lower rate, lifetime base rate tracker, interest only mortgage as my strategy is much the same as yours. However, my faith in such an arrangement becoming available in low 🙁 Therefore, I need to concentrate of maximising the profits from my BTL portfolio and working with market conditions.
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You can arrange an investment or savings vehicle separately from your mortgage e.g. ISA based to reduce or pay off your mortgage as and when you remortgage or want to clear it altogether..

Reply to the comment left by "Puzzler " at "26/08/2013 - 10:10":

Makes no sense that a BTL portfolio isn't considered to be an investment in this context doesn't it?
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Reply to the comment left by "Gillian Schifreen " at "26/08/2013 - 09:33":

Hi Gillian,

Absolutely not. On a repayment mortgage you will repay some of the capital every month, just a smaller amount at the start of the loan than the end.

Therefore no matter how long you have had the repayment mortgage ignoring any fees you will have paid off some of the capital and be starting the new loan with a smaller amount.

If you move an excessive amount, don't seek good advice and keep paying penalties and fees which you add to the loan it can seem like you are not paying any capital off but I can assure you you are.

I hope that helps.

Reply to the comment left by "Mark Alexander" at "26/08/2013 - 10:46":

Puzzler is correct if he wants to save to pay off the capital with a tax efficient saving vehicle during any Early repayment charge period and then repay the capital later.

Reply to the comment left by "Mark Alexander" at "26/08/2013 - 10:46":

Well you could say that it is, except that to realise it to wipe out the debt you would have to sell some of the portfolio.

Reply to the comment left by "Puzzler " at "28/08/2013 - 08:20":

Or refinance part of the BTL portfolio perhaps?

Please check out this series >>> http://www.property118.com/exit-strategies-for-buytolet-landlords/

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