Interest only mortgages- money borrowed decreasing

glastowinebar

I have an interest only mortgage. The last time I checked it was £44,500
It's now gone down to £44,000

How can that happen? I was under the impression that an interest only mortgage, only pays off the interest and the amount borrowed stays the same

I have a feeling I should know this

Gorgeous_George

Maybe your monthly payment has just been credited. One day before your next payment the total owed will be higher. It is unlikely that this will account for all the change. Is the IR variable but your payments fixed annually? If your IR has fallen over the past 12 months this could account for the difference. Unlikely again.

GG

_Glycerine_

i have recently started for a bank for mortgage department. With interest only, monthly payments are calculated on a average; which would be 30 days for a month, while the interest is calculated on the actual days. so that your payment is the same every month, but your interest will be different every month down to how many days in the month. As you only pay for 30 days a month, over the year it works out to be 360 days you have paid for and not the 365.

so when a fixed term comes to an end, your balance can actually be more than when you started. when you switch products, your payments will be calculated on your new higher balance which of course will be just slightly higher and will include a tiny amount of captial repayment for the difference, over time your balance can go under the set mortgage amount. Over the full term of the mortgage (eg 25 years) the balance will go up and down, but you will only ever have paid the interest.

This could be one possible reason, but it will depend on the actual bank itself, as different banks will obviously workout payments and balances differently. It could also just be that your mortgage lender have not added on this months interest yet. Although, as i have been told, most add a months interest on the 1st of any month.

_Glycerine_

I would suggest phoning your provider and asking them, they will be able to give you the best answer