Mortgage Problem

DeeFer

Hi all.

I took out a mortgage starting on 1st Jul 16 for 100k.

The mortgage company are charging me £300.77 initial interest then £1065.27 per month for 10 years.

So I'm paying back 300.77 + (1,065.27 x 120) which gives 128,133.17

I made an over-payment at the beginning of the month for 1,500 and the mortgage sent me a new repayment figure of 1,055.94 starting on Sep 1st.

So, in total, I'm now paying 300.77 + (1,065.27 x 2) + (1,055.94 x 118) + 1,500

Which gives 128,532.23

I know I haven't allowed for the interest payments decreasing over time but surely the total repayment should have reduced because of the over-payment and not increased.

Am I missing something?

DeeFer

frazell

Why have you added the £1,500?

DeeFer

I added the £1500 because it's money I have given to the mortgage company.

frazell

But the effect of the £1500 is that its reduced your capital and therefore the monthly payment has been reduced to £1055.94 as a result. It should be ignored.

ViolaLass

frazell wrote: »

But the effect of the £1500 is that its reduced your capital and therefore the monthly payment has been reduced to £1055.94 as a result. It should be ignored.

It's still gone from the OP's account to the bank.

OP, have you asked the bank whether the amount you owe after 10 years will have changed at all?

DeeFer

Thanks for the reply Frazell.

I don't understand why I should ignore the £1500 when it's money that has come out of my pocket and into theirs.

I'm also wondering why the difference between the old and new payments is only £9.33

9.33 x 118 = 1,100.94 which is almost 400 less than 1500.

DeeFer

ViolaLass wrote: »

It's still gone from the OP's account to the bank.

OP, have you asked the bank whether the amount you owe after 10 years will have changed at all?

ViloaLass, I haven't asked that question. The terms of the mortgage allow over-payments of 10% per year without penalty so I assumed the total payment would be reduced.

I have asked for details of their calculations but still need clarification as what they have said so far hasn't really helped.

frazell

I assume that you have a repayment mortgage (capital/interest)?


What is the rate that you have?

DeeFer

frazell wrote: »

I assume that you have a repayment mortgage (capital/interest)?


What is the rate that you have?

Yes, it is a repayment mortgage. It's 4.99% fixed for 5 years. It's a BTL so a bit more expensive.

d70cw6

i'd question it with them.

When i make £2000 overpayments on my mortgage (~20 years left = 240 months), the recalculated monthly payment typically goes down by ~ £10.

£10 x 240 = £2400, so you can see the effect of that £2000 payment.

I'd expect to see the same with yours.

frazell

It appears that you have applied the overpayment such that the term is retained at 10years and the monthly payments are reduced.

You have overpaid £1500 to the capital presumably.

Therefore the capital owed is now circa £98500 and your monthly payments have been reduced to £1055.94. This reduction is the affect of the interest portion of the payment being reduced.

Very simplistically using the following calculator;

http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator#results

Mortgage term = 10years
Rate = 4.99%
Loan Amount = £100,000

Total monthly payment = £1060
Total owed at the end of 10 years = £127,244

If you repay £1500 from the capital right at the start of the mortgage, as you have done;

Mortgage term = 10years
Rate = 4.99%
Loan Amount = £98,500

Total monthly payment = £1044
Total owed at the end of 10 years = £125,335

I agree with d70cw6 that your monthly reduction doesn't look quite right but that is the principle of the repayment over the entire term.