new mfw

chirpchirp

I'm hoping someone can help. Probably just my poor maths brain but I'm having problems understanding a mortgage calculator. I would have thought the difference between the interest only and the repayment amount would remain the same no matter what the percentage difference is as long as the term of the mortgage is the same. However, this doesn't appear to be the case. Can anyone explain why this isn't so? It appears the higher the interest rate, the less the repayment amount needs to be. I've been using the bbc mortgage calculator if anyone wants to check my figures.

Grateful as ever for any replies.

chirpchirp

I thought I would try to explain my last post a bit further.
Based on a 25 yr mortgage, interest being paid at 4.89%, repayments would be as follows:
Interest Only :982.08
Repayment: 1393.46

Therefore the capital repayment each month would be £411.46.

Based on 25 yr mortgage, interet being paid at1.49% repayment would be as follows.
Interest Only: 299.24
Repayment: 962.71

Therefore the capital repayment each month would be £663.47.

Surely the capital repayments should be the same if being paid over 25 years. I would have thought the interest rate would only affect the interest proportion and not the capital that needs to be paid off. Can someone explain this?

setmefree2

maro11 wrote: »

Hi Chirpchirp,
You inspired me to write as I am in a similar situation to you. I have 210,000 remaining on my mortgage with 11 years left. I have a lifetime tracker and have seen my rates drop. I have knocked over 2K off since November. I too cannot change to a repayment due to my financial situation having changed dramatically since we took the mortgage. I am worried about the interest rate rising but am throwing everything at the mortgage at the moment to reduce it. Can't wait to get it under 200k.
Good luck with your journey.
Maro

well done on the overpayments and

JonnyBravo

chirpchirp wrote: »

I thought I would try to explain my last post a bit further.
Based on a 25 yr mortgage, interest being paid at 4.89%, repayments would be as follows:
Interest Only :982.08
Repayment: 1393.46

Therefore the capital repayment each month would be £411.46.

Based on 25 yr mortgage, interet being paid at1.49% repayment would be as follows.
Interest Only: 299.24
Repayment: 962.71

Therefore the capital repayment each month would be £663.47.

Surely the capital repayments should be the same if being paid over 25 years. I would have thought the interest rate would only affect the interest proportion and not the capital that needs to be paid off. Can someone explain this?

You're looking at it wrong. I'll try and explain.

The capital repayment amount stays the same, yes, but the amount paying actually off capital increases each month.... ie less is assigned to interest due to less owing.

Therefore towards the end of the second example virtually all the £1393
is paying off capital whereas in your first example towards the end "only" virtually all the £962 is paying off capital.
You will still end up paying the same amount of capital off but it's in effect sliding at a different rate if you see what I mean.

You need to look at a calculator which breaks down each months payments into interest and capital to get the picture far clearer than I can explain.

I'll see if I can find one.... I downloaded one off someone on here

Here it is... an excellent spreadsheet by Locoblade. I've not found better.

http://forums.moneysavingexpert.com/showthread.html?t=1157173

chirpchirp

I still don't get it but that spreadsheet is very useful and maybe if I play with it in a few days then it might begin to make sense. Thanks for the spreadsheet.

blueberrypie

chirpchirp wrote: »

I still don't get it but that spreadsheet is very useful and maybe if I play with it in a few days then it might begin to make sense. Thanks for the spreadsheet.

Your payments are not worked out as a static "x off capital, y off interest each month". They are worked out based on you paying it off over the whole life of the mortgage, without any additional changes such as remortgaging or overpaying.

With a repayment mortgage, the bit of your payment that goes to interest changes each month. You pay the same, but in the early days of a mortgage, most of your payment goes to interest. The little bit that's left comes off your balance owed. The next month, your balance owed is a little bit lower, and so you are charged a little bit less interest, and so a little bit more of your payment goes to pay off the capital.

chirpchirp

Well quick update for you on how things are going toward making an overpayment.

Yesterday looked promising, first I started the day with finding out that my kids breakfast club is now taking the second child at half price saving me £17.50 this half term! Great news.

Then my job share told me I could claim back by professional membership from my employer - hopefully this will be another £33.

I also went to find out about claiming petrol for a training session I went to a few weeks ago. Unfortunately, I can't find the petrol receipt and the form implies you have to be insured for business purposes. This was a one off training meeting - on a day that I don't work so I had 56 miles that I don't normally travel. I thought as it wasn't my usual day of work that I would be able to claim for it but as I threw out my petrol receipts during the holidays when I was having a clear out - even the ones in my car which is unlike me as I'm such a hoarder. It looks like I will have lost approx £20 :-(.


I then got home to find my electricity bill - which is extremely high, at least this has spurred me on to begin to save electricity. On the negative side, I had hoped the overpayments on my electricity would cover the defecit on the gas when I swap suppliers later this month but the bill has eaten into these "savings".

On a positive note, I managed to bring my weekly shop in at just under £35. I have found that for our family of one adult and two kids that this has now become my average spend. It used to be about £60-£80 and that was when I first started cutting down from when it had been over a £100+ when my ex lived with us.

However, the month overall is looking much worse than I had hoped, I think because I realised by insurance where charging me for paying by direct debit and being one month into the contract I cancelled the direct debits and paid the amount in full. This was coupled with beginning an ISA at £150 a month.

Oh well - come June I'll have a realistic idea of what I can afford to pay each month, my interest rate will drop and in July I will have spare cash (hopefully) as by then I should have finished paying my solictor for my divorce. I will also know by then if my ex has been made redundant

setmefree2

chirpchirp wrote: »

Yesterday looked promising, first I started the day with finding out that my kids breakfast club is now taking the second child at half price saving me £17.50 this term! Great news.

Yay

chirpchirp wrote: »

Then my job share told me I could claim back by professional membership from my employer - hopefully this will be another £33.

Yay

chirpchirp wrote: »

I also went to find out about claiming petrol for a training session I went to a few weeks ago. Unfortunately, I can't find the petrol receipt and the form implies you have to be insured for business purposes. This was a one off training meeting - on a day that I don't work so I had 56 miles that I don't normally travel. I thought as it wasn't my usual day of work that I would be able to claim for it but as I threw out my petrol receipts during the holidays when I was having a clear out - even the ones in my car which is unlike me as I'm such a hoarder. It looks like I will have lost approx £20 :-(.

chirpchirp wrote: »

I then got home to find my electricity bill - which is extremely high, at least this has spurred me on to begin to save electricity. On the negative side, I had hoped the overpayments on my electricity would cover the defecit on the gas when I swap suppliers later this month but the bill has eaten into these "savings".

Yay

chirpchirp wrote: »

On a positive note, I managed to bring my weekly shop in at just under £35. I have found that for our family of one adult and two kids that this has now become my average spend. It used to be about £60-£80 and that was when I first started cutting down from when it had been over a £100+ when my ex lived with us.

chirpchirp wrote: »

However, the month overall is looking much worse than I had hoped, I think because I realised by insurance where charging me for paying by direct debit and being one month into the contract I cancelled the direct debits and paid the amount in full. This was coupled with beginning an ISA at £150 a month.

Oh well - come June I'll have a realistic idea of what I can afford to pay each month, my interest rate will drop and in July I will have spare cash (hopefully) as by then I should have finished paying my solictor for my divorce. I will also know by then if my ex has been made redundant

We are all "making haste slowly":D. Remember "it's a marathon not a sprint". Don't be too hard on yourself;) Well done on your progress

chirpchirp

Found out today that my professional fees are paid back to me automatically - so will appear in my April pay. However, the first year of me paying these fees I paid late in the year due to me qualifying then and these weren't reimbursed so these will also be paid back to me. So great news here.

I've wasted time fiddling with spreadsheets trying to work out if my new energy supplier will really be cheaper and I think they will be - so more good news.

Unfortunately, the kids are wanting to do more activities and I'm afraid I'll have to say yes as both activities will be good for them. I might say no to my son though as he already does football with one club he doesn't really need further football. However, my daughter will hopefully join windband soon - which isn't too expensive £38 ish a term.

Overall, lots of good money saving this month but distorted bank/spreadsheet figures for expenditure as things from last month finally came out of account this month and I paid my solictor for last months payment and this months payment all at the start of the month. Then of course there was the yearly buildings insurance. On top of this school dinner monies became due in April too and had to paid. As well as school childcare clubs. It's also been the month for getting billed for music lessons for two children, however, I'll leave these as late as possible so I don't feel the hit this month.

Bills, Bills Bills - don't you just love them!

Have also created my signature too.

setmefree2

Oh horror!I know what you mean about the cost of out of school activities - it's a major expense in our house too - sport and music cost a packet:eek:. It doesn't get cheaper as they get older either...

As for dinner money :eek::eek::eek: . My kids love school dinners so at least that's something....

All the Best

SMF2