SVR mortgage, should payments change?

Wesker

I've always had a fixed rate on my mortgage (Northern Rock) so have always paid the same amount each month. Fixed rate has now come to an end and we've been put on the SVR.
Obviously the payments have gone up to what we were paying before but i thought that with every payment we made from now on the next months payment would be slighty less, as obviously the capital is slowly reducing so slightly less interest each month.
Well we've just paid our second month since going on SVR and the payment was the same. I know it wont be much less but i thought it would change each month, thats why i've always stuck to a fixed rate in the past.
I am hoping to make some overpayments soon so would expect it to go down a bit

pm2326

Hi your payments will stay the same until there is another rate change. they will then recalculate payments based on the lower balance.

If you make overpayments you can ask them to recalculate the monthly payment or leave it as it is. if left as they are you chip away more at the debt as the interest will reduce but the payments stay the same

Gorgeous_George

pm2326 wrote: »

Hi your payments will stay the same until there is another rate change. they will then recalculate payments based on the lower balance...

... but over a shorter period.

For £100K borrowed over 25 years at 7%, your monthly reayment will be £706.78 made up as follows:

Month...Outstanding...Interest...Repayment
...1........ £100,000.00.. £ 583.33.. £ 123.45
...2........ £ 99,876.55... £ 582.61 ..£ 124.17
...3........ £ 99,752.39 ...£ 581.89 ..£ 124.89
...4........ £ 99,627.50... £ 581.16...£ 125.62
...5........ £ 99,501.88... £ 580.43.. £ 126.35
...6........ £ 99,375.53... £ 579.69.. £ 127.09
...7........ £ 99,248.44... £ 578.95.. £ 127.83
...8........ £ 99,120.61... £ 578.20.. £ 128.58
...9........ £ 98,992.03... £ 577.45.. £ 129.33
..10....... £ 98,862.71... £ 576.70...£ 130.08


As you can see, each month you owe slightly less and the interest element falls accordingly while the part repaid increases slightly. This ensures that your monthly payment is constant at £706.78.

If the interest rate doesn't change, this continues for 300 months. If the IR changes after (for example) 5 years, while you will owe less, the new repayment will be over just 20 years.

GG

WillowCat

If you're not making overpayments, and the interest rate stays the same, your payments should also stay the same.

In the early years you're paying lots of interest, and only a teensy bit of capital back, as you progress through the mortgage term the ratio changes so at the end you're paying tiny amounts of interest and lots of capital.

For a very rough calculation of your monthly payment if it were calculated in the way you suggest, multiply your mortgage amount by the current interest rate, divide your mortgage amount by the number of years remaining, add these two together and divide by twelve. You might be in for a surprise!

Wesker

Thanks for the help guys, didnt realise it worked like that :rolleyes:

Gonna make an overpayment soon so that will bring it down a bit