First Mortgage – Question about stated ‘monthly payments’

mjgreen

Hi all,

My wife and I are currently going through the process of buying our first home and have been offered a mortgage from the Post Office.

Reading through the documentation, we have a question about the monthly repayments.

The documentation states that we will have (these are approx figures) :

60 x £850.00 payments

240 x £650.00 payments

As we understand it (and it states in the documentation) the total we owe on the mortgage is recalculated on a daily basis. Our question is, how can they put these figures, when every month we will be paying off money from the total owed and therefore the total should drop each month.

Could someone explain this bit to me

My only guess is that the total figure is calculated at the start, (eg, loan of £130,000 means we will pay back £200,000 and then divided in to the 60 x £850 and 240 x £650 payments), but then what is the point of the mortgage being ‘recalculate don a daily basis’, or is this just there for if we paid off a lump sum.

Thanks in advance

_Andy_

It's worked out so that the monthly payments are roughly equal.
In the early days most of what you're paying is interest. As time goes on there's less balance and therefore less interest, thus towards the end of the term most of what you're paying is the capital.

mjgreen

Yeah, think I am just being thick today...so regardin the 'daily recalculation', is that just in case we pay a lump sum off?

_Andy_

That's right yes, it means you benefit immediately if you make an overpayment.

Soot2006

mjgreen wrote: »

Yeah, think I am just being thick today...so regardin the 'daily recalculation', is that just in case we pay a lump sum off?

Or if you make even a £10 overpayment.

Basically the overpayment would go straight to capital, and thus the interest would then be recalculated on the new capital owing. there's a niftly little overpayment calculator somewhere online that lets you see exactly how your payments & overpayments affect your mortgage owing.