Very odd mortgage monthly repayment from fixed to variable rate. Please help!!

kamzy

Hi

I'm not exactly great with the maths but basically my parents have been on a fix rate at 6.640% which ends in 30 June 2010. Their payment was £1081.95 per month.

The lender has written to them saying they will be moved on to the standard variable rate at 3.50% and their mortgage payment will be £966.16.

I may be completely wrong but surely if the interest rate has nearly halved how can the payment only decrease by £115.79?

Can anyone shed some light please?!!!

Many thanks
Kam

Wakey2008

It depends on the size of the mortgage and term remaining. If, for example, they only have a few years to run then a big difference in rates will not make much of a difference in payment.

beecher2

You'd need to give details of the term left, and the amount outstanding.

If it is a short term, then they will be paying more capital than if it is a short term so that could be the reason.

maninthestreet

OP, I reckon the outstanding amount on your parents' mortgage is just over £44K.

kamzy

They've got as at today £78098.73 oustanding. And the term remaining is 7 years 7 months if that helps?

ginvzt

That sounds about right. About £750 of the new repayment figure would be capital repayment (reducing the mortgage amount), and £220 of the interest part. Where before interest would have been about £430.

(Not exact numbers, just approximation)

dimbo61

If Mum and Dad can afford ask them to keep the payments static that way they will have the mortgage paid off earlier and save paying thousands in interest !
The mortgage payment would be the same as they have been paying for the last couple of years but the term would be reduced.

maninthestreet

£78098.73 x (6.64/100) = £5185.75 interest p.a = £432 per month
£78098.73 x (3.5/100) = £2733.45 interest p.a = £227 per month

£432 - £227 = £205

So the monthly payment should have decreased by £205, not just £115, assuming the mortgage term has not been reduced.

getmore4less

maninthestreet wrote: »

£78098.73 x (6.64/100) = £5185.75 interest p.a = £432 per month
£78098.73 x (3.5/100) = £2733.45 interest p.a = £227 per month

£432 - £227 = £205

So the monthly payment should have decreased by £205, not just £115, assuming the mortgage term has not been reduced.

Repayment mortgages don't work like that.

The capital componant has to go up when the interest rate goes down.

maninthestreet

getmore4less wrote: »

Repayment mortgages don't work like that.

The capital componant has to go up when the interest rate goes down.

That would shorten the term of the mortgage - have the OP's parents been told that their mortgage term has been reduced?

beecher2

maninthestreet wrote: »

That would shorten the term of the mortgage - have the OP's parents been told that their mortgage term has been reduced?

It wouldn't shorten the term - have a play around with a mortgage amoritization calculator to see how it works.