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I have a tracker mortgage which is part repayment and part endowment.
I have had this for 7 years and the repayment element has not decreased at all.
Why is this ??
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878Presumably, they have been reducing the outstanding mortgage faster instead.
The payments for a redemption mortgage comprise 2 elements. The first is the interest, which comprises the vast majority to start with. The other is the redemption element.
When interest rates fall, the interest element would fall. Depending on what it says in your mortgage deed, they could either maintain the existing total payment, which would result in that part of the mortgage being repaid earlier, or they could offer you a choice as to whether you wish to maintain the payments, reducing the payments to keep the finishing date the same.
Conversely, a rise in interest rates would result in either a rise in your payments or a lengthening of the mortgage term.
I would suggest that shortening the term would be the better approach if you are not desperately short of cash, because interest rates could well rise in the next couple of years. By reducing your mortgage now, you will have less to pay when rates rise.
It is possible that rates rose initially before decreasing in which case the term would have initially lengthened and then started to shorten.
Mike
Posted on 13 August 2012 |
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1MikeGG1, I think you may have read the question incorrectly.
Tim , if indeed part of your mortgage is on a repayment basis then the balance should be reducing and notably so after 7 years of payments.
Of course, the endowment part will be on an "interest only" basis and will therefore remain level with the sum to be repaid on maturity of the endowment, although you should check the endowment is on course to do this.
I would query with the mortgage lender as if the balance on the part of the mortgage you say is on a repayment basis has not reduced, I think you may find the whole mortgage is actually on an "interest only" basis, not just the endowment part.
Posted on 13 August 2012 | Love 0 loves
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878Having re-read the question, it can be taken either way. Perhaps Tim could confirm which was correct?
If it is all on an Interest-only basis then the monthly payments will have varied considerably over the period.
However, I have just had another thought that the Tracker could well have a "Collar" and/or a "Cap". That would limit the movement of interest rates down or up, respectively.
Mike
Posted on 13 August 2012 | Love 0 loves
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1Mike,
The statement from Tim was "I have had this for 7 years and the repayment element has not decreased at all." I don't see how there are 2 ways to read this.
Interest rate movements would have no impact on any repayment part of the mortgage reducing. If Tim has used an option for monthly payments to remain the same in the event of interest rate drops then he would expect the repayment part of the mortgage to reduce quicker.
Mally
Posted on 14 August 2012 | Love 0 loves
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878Mally
Tim could have been referring to the balance but he could also have been referring to the payments. He was not specific.
You assumed the balance and I assumed the payments. My reason was that he said that the repayment element had not decreased, which implies that the interest-only element had, which could only refer to the payments.
Mike
Posted on 14 August 2012 | Love 0 loves
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24I thought endowment mortages had been finished with years ago! Very popular in the 70's when I took out my 1st mortgage.
Are you sure you have a part repayment mortgage, and not an interest only mortgage with an endowment to repay the loan on completion?
Check your yearly statements, if there are is no reduction in the loan then the above maybe the case.
Your original contract with your loan provider will provide this information.
Please keep us informed...who sold you the endowment?...is it a 50/50% split?
Posted on 14 August 2012 | Love 0 loves
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62Given the limited information provided no-one is going to be able to do better than guess. Why not ask your loan provider. You might just get an honest and accurate answer or they might just make it so complicated you won't understand it. Good luck.
Posted on 14 August 2012 | Love 0 loves
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