Fixed rate - dumb question???

brutus6

This is possibly a really really dumb question, but couldn't find an answer on any forum or doing an internet search. Probably because I am missing something really obvious here.

Here it goes:

Why when I have a 5 year fixed rate mortgage do my payments stay the same for the 5 year term? Surely they should go down very slightly each month or at least each year?

I mean if it is capital repayment, isn't the loan that the interest is calculated on reducing as you pay a bit back each month or does it not work like that?

If fixed rate is 4.49% (First Direct) and the loan is reducing, then 4.49% of less of a loan is surely less to pay back each month?

I am ready to be completely embarrassed, when someone explains it to me.

20vt-rs

No they stay the same, but as you are effectively paying off capital each month as well as interest, your interest decreases and the amount of capital you pay starts increasing as time goes on...

brutus6

Thank you for such a quick response... so is it effectively that you're overpaying slightly? So in say year 4 you're paying more that you should be, but the amount over what you should be paying comes off the capital?

Trouble is I use these mortgage calculators to find the best rate, but I don't really understand how the repayments are calculated.

pwllbwdr

No. The rate at which you were paying off the capital in month 1 wouldn't be enough to pay off your mortgage in the 25 (or whatever you have) year term.

The payment stays the same throughout (if no interest rate changes) but towards the end the same payment is more going to capital than interest whereas at the start it is mostly interest.

Goldiegirl

Sometimes, they might recalculate the monthly payment, if an event happens to trigger this, like a part repayment.

But they would never give you a recalculated monthly payment every month.

It would only change by a few pence, and would cause them far too much work

kingstreet

The amount you pay each month is calculated to repay the mortgage by the end of the term, allowing for the correct amount of interest to be paid each month.

The only time the monthly payment would change is if the interest rate changed.

It doesn't matter if it's fixed or variable. There is a "schedule" to follow to ensure the mortgage is repaid by the end of the term.