Why is the capital repayment bigger in new mortgage

Armbase

Hi All.

Using a mortgage calculator to see what my new mortgage will be I get a confusing result.

Morgage 235,000
Interest rate 6.15% (old rate)
Repayment £1535
Interst part of this £1204
Therefore the repayment part is 331/month coming off my total.

On my new mortgage (over the same period) at 2.5%
The monthly payment is £1054
The interest part is £489
Therefoe the repayment part is £565

Surely the bit coming off my total should be the same no matter what the interest is? IE the capital is being paid off at the same rate?

IE why is my mortgage not £489 interest + £331 repayment = £820.

PS I can afford it but I'm stumped???
Cheers
Bob

Thrugelmir

The capital repayment is lower initially as a mortgage is calculated to repay the debt in equal installments over the entire term.

With the second option. You will be repaying capital quicker sooner.

So take the second option and overpay while you can afford it. That way you'll you repay your mortgage far quicker.

Armbase

Thrugelmir wrote: »

The capital repayment is lower initially as a mortgage is calculated to repay the debt in equal installments over the entire term.

With the second option. You will be repaying capital quicker sooner.

So take the second option and overpay while you can afford it. That way you'll you repay your mortgage far quicker.

THanks for the reply.

However, both mortgages are over 25 years so it is not being paid off early with the higher capital ammount.

I get the same result with Martin's mortgage calculator.

Cheers
Bob

Annisele

The lower the interest rate, the more capital you pay off each month.

I think it's easiest to see if you get extreme with your interest rates:

Say we both have a mortgage for £100,000 over 10 years. You manage to negotiate a fixed rate of 0% for ten years, and I get a rate of 10% for 10 years.

You'll pay £10k per year for 10 years, and all of your repayments will be capital.

The first year, I'll pay about £10k in interest and £5,800 in capital.

Edit: I don't mean to imply that I think 10% is an extreme interest rate. It isn't - that one was chosen for ease. 0% is a different matter!

CLAPTON

ok my view


the capital repayment and the interest vary each year
so it's wrong to think of 331 as coming off the capital each year; that only happens in the first year (of the mortgage at 6.5%); in each subsequence year the capital repayment increases as you are paying less interest (as the interest depends upon the capital balance)

obviously with the higher interest rate (6.5%) the monthly payments are much higher; however as the balance is repaid the proportion of the monthly payment that is interest falls quicker than with the 2.5% mortgage.
because of this you need to pay more capital back in the early stages of the 2.5% mortgage than with the 6.5% mortgage

beecher2

Play around with amortization calculators and it'll make more sense.

Armbase

Here is the repayment schedule from Martin's calculator. I've just done the 1sr 5 and last 5 years so you get the drift.
Year Amount left at 6.15% Ammount left at 2.5%
0 235,000.00 vs 235,000.00
1 230,909.74 vs 228,145.82
2 226,560.71 vs 221,118.32
3 221,936.55 vs 213,913.10
4 217,019.84 vs 206,525.67
5 211,792.09 vs 198,951.42

So it is being paid off quicker. Inittially on the lower interest then higher later on. (seems to be writing in bold for some reason)


Then the high interest one catches up

20 79,150.56 vs 59,403.16
21 65,200.72 vs 48,108.41
22 50,368.36 vs 36,528.03
23 34,597.66 vs 24,654.81
24 17,829.24 vs 12,481.33
25 0.00 vs 0.00

I
cheers
bob

Armbase

Okay thanks for that. Got it now. PS the above post was written while you were replying so it is out of sync. :-)