Fixed Rate Mortgage - question

sitesafe

Hi

Just wondering, if you have a fixed rate mortgage I'm aware that the rate is fixed.

However as I keep hearing mention of 'gives you the security of knowing that your payments will remain the same...' about them, does this mean that the payments will remain the same throughout the life of the fixed rate deal.

Or, do the payments change taking into account the reduction in balance on your mortgage after you've made some payments? Ie if you started of with 60k and paid of 10K after a year, would the fixed interest be based on the original 60 K (so payments the same throughout) or would they be reviewed and based on the outstanding balance of 50K.?

Thanks

herbiesjp

Any illustration would be based over the full term of the mortgage.

The first payments will be based on the fixed rate.

The subsequent payments will be based on the reversion or follow-on rate i.e. SVR or tracker.

However they can only be based on rates on the day of issue.

Should rates change and the SVR or tracker increase, that means that after the fixed rate has expired, your mortgage payments will be higher than the quoted figures.

sitesafe

herbiesjp wrote: »

Any illustration would be based over the full term of the mortgage.

The first payments will be based on the fixed rate.

The subsequent payments will be based on the reversion or follow-on rate i.e. SVR or tracker.

However they can only be based on rates on the day of issue.

Should rates change and the SVR or tracker increase, that means that after the fixed rate has expired, your mortgage payments will be higher than the quoted figures.

Hello again...

please bear with me...not a numbers person as you've prob guessed by now. (shame really as if you're not a letters person you get labelled and get help, not so if not a numbers person)

so if i took out a fixed rate mortgage over five years would my monthly payments be the same towards the end of the term as they were at the beginning...is what i'm really trying to say? is that what fixed rate means or is it just the rate that's fixed but payments would change according to what you've paid off the balance?

thank you again

kingstreet

You need to take the fixed rate issue out of the equation for now.

A repayment mortgage works by charging the interest in the early years, with the capital being repaid later on. For example, in year twenty of a twenty-five year mortgage you probably still owe nearly half of what you borrowed.

Consequently, very little of your first few years payments reduces the amount you borrowed.

When you change your mortgage deal, the payment is based on the interest rate and the number of years needed to repay the debt from that point on. When a fix ends, the payments are based on the reversion rate, or SVR, to repay the debt by the end of the mortgage term.

If you want to make overpayments later, you will have the choice of reduced normal monthly payments, or the same payments and a reduced term.

HTH

Thrugelmir

sitesafe wrote: »

so if i took out a fixed rate mortgage over five years would my monthly payments be the same towards the end of the term as they were at the beginning...is what i'm really trying to say?

Yes they would remain the same.

At the end of the 5 year fixed term. Your mortgage would default onto the interest rate as specified by the mortgage offer. To repay the balance owing over the remaining 20 years of the mortgage term.

Should interest rates subsequently move up or down. Your payment would be amended accordingly.

sitesafe

kingstreet wrote: »

You need to take the fixed rate issue out of the equation for now.

A repayment mortgage works by charging the interest in the early years, with the capital being repaid later on. For example, in year twenty of a twenty-five year mortgage you probably still owe nearly half of what you borrowed.

Consequently, very little of your first few years payments reduces the amount you borrowed.

When you change your mortgage deal, the payment is based on the interest rate and the number of years needed to repay the debt from that point on. When a fix ends, the payments are based on the reversion rate, or SVR, to repay the debt by the end of the mortgage term.

If you want to make overpayments later, you will have the choice of reduced normal monthly payments, or the same payments and a reduced term.

HTH

ok i get it now...tvm

sitesafe

Thrugelmir wrote: »

Yes they would remain the same.

At the end of the 5 year fixed term. Your mortgage would default onto the interest rate as specified by the mortgage offer. To repay the balance owing over the remaining 20 years of the mortgage term.

Should interest rates subsequently move up or down. Your payment would be amended accordingly.

thanks for your help