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Can someone help me with this mortgage calculation?

edited 30 November -1 at 1:00AM in Mortgages & Endowments
11 replies 730 views
Ronaldo_MconaldoRonaldo_Mconaldo
5.2K Posts
edited 30 November -1 at 1:00AM in Mortgages & Endowments
We currently pay £701 a month on a 30 year/5 year fixed mortgage (5.83%) on £118,000 borrowings.

We are down to a balance of £86.5k and the capital amount of the monthly payment is about £280, I can see that from the recent mortgage statement we received up to the end of December. Anyway, when I just called Santander they offered a 3.99% fix rate over 15 years (the total term has been reduced through overpayments) on the above outstanding balance - so what I'm saying is that everything stays the same except the rate reduces.

Then he told me the monthly repayment would be about £625 and I checked it afterwards on a mortgage calculator and it showed the same figure. The problem I have is that i'd expect it to be lower, the mortgage calculator seems to show that our capital payments would be increasing.


So to summarise. If you have a 5% mortgage which means that your capital payment every month is £500 and interest is also £500 then, if you remortgage and keep everything the same but the rate falls doesn't that mean that your capital payment would be £500 but your interest would reduce?

Thanks for your help.
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Replies

  • martinsurreymartinsurrey Forumite
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    in short, no.

    If your interest rate falls, your total payment falls, but your first month element of capital rises.

    This is because the higher the interest rate, the larger the effect of paying off capital, on the interest charge in future years.

    Think of it like this, on a mortgage with £1000 repayments the last payment is all capital (well pennies of interest) so pays off £1000 of capital.

    On the same loan with a lower interest rate and so payments of £900, the last payment is still almost all capital, but only pays off £900 capital. The difference of £100 is made up by paying off more capital earlier on in the loan.

    as such your total payments fall, but the allocation of capital gets more front heavy, the lower the interest rate
  • Right, thanks for the answer. For me anyway I'd be saving £80 a month overall with the interest greatly reduced on what we pay at the moment and the capital repayment increased by £70 a month.
  • dimbo61dimbo61 Forumite
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    Part of the Furniture 10,000 Posts Name Dropper Photogenic
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    Is your lender offering you a 15 year deal at 3.99%?
    Are you happy with this as you have been overpaying for the last couple of years ( well done!!)
    You talk about the outstanding mortgage but not the equity in the property and with a couple of 5 year fixes at 2.79% (COOP as an example) you maybe better off moving lenders and taking a 5 or even 10 year fix!
    I use " whatsthecost" to work out deals
    Good Luck
  • TrickyDicky101TrickyDicky101 Forumite
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    Great explanation Martinsurrey :)

    That sounds (to me) like a cracker of a deal Ronaldo. Are there significant fees attached?
  • The deal was with Santander for 15 years but fixed for either 3 or 5 years at 3.99% interest. The balance outstanding is about £85k and the house is worth about £130k (bought for £150k). I said that I'll think about it, got to talk to my wife as well. It just seems so much easier and cheaper (no sign-up fee) to stay with the same bank.
  • kingstreetkingstreet Forumite
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    There's nothing over 10 years, according to Mortgage Brain. I suspect 15 years is the term of the mortgage, not the term of the rate.

    Best 10 year is 4.29% from what I can see.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • kingstreetkingstreet Forumite
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    On the mortgage amount in question, products with low/no fees might be the best option;-

    2 or 3 years 2.89% £25 initial fee £90 final fee

    5 years 3.19% £25 initial fee £90 final fee

    Based on £86,500 on £130,000.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • BufgerBufger Forumite
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    15 years is the term of the mortgage. I can see a santander 3.99% 5 year fix on his nearest LTV window.

    Shop around, I think you'll be able to beat that.
    MFW - <£90k
    All other debts cleared thanks to the knowledge gained from this wonderful website and its users!
  • TrickyDicky101TrickyDicky101 Forumite
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    15 years fixed at 3.99% would have been sweet. Shame that was never on the table.
  • Sorry, I forgot to include that bit in my initial post, I thought I had thrown in every last bit of info I could think of that might be relevant but forgot that bit. Maybe there should be a quick summary form to fill in for people on here so they can just get down to their question rather than rambling on with info just to ask a pretty straight forward question: "it was a cold dark morning in October of 1998 when I paid £150k for my house etc etc...how much will it cost to switch lenders next week?"
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