Fixed Rate Mortgages - Potentially Stupid Questions (Scenario Spreadsheet Available?)

Anon

I hope someone may be able to assist as I am having a stupid moment.

I have just signed up for a 5 year fixed rate mortgage (5.63%) on a repayment basis - I understand that by the end of the mortgage term, all that I have borrowed will be paid off. My understanding is that the interest is calculated daily, and if you make any overpayments (£500 per month allowed) then this is taken into consideration in a revised outstanding balance.

I am being dim, but the Key Information leaflet shows 60 payments at £X (same payment each month) followed by 240 at the SVR.

If I am on repayment basis, and the capital is therefore reducing slightly each month, does the payment remain fixed at the original amount (and the capital will reduce by a larger amount each month)? I am assuming that the "repayment" element is worked out so that, by the end of year 25, all is paid off so it starts a low amount and steadily grows as a % of payment?

Does anyone have or know of a spreadsheet that can demonstrate the affect of making monthly payment (and overpayments) please on a repayment mortgage?

Also, the mortgage illustration shows an initial interest payment only, followed by the higher interest/repayment payment. By my calculations, the stated interest only payment equates to 5.73%, not the advertised 5.63% - is there a logical explanation for this please?

Many thanks

Anon

pollyanna24

The way I understand interest on mortgages is to think of it like this:-

(for example) 5% Interest on (for example) £100,000 is always going to be the same amount, i.e. £5,000 (so this is what you would pay in a year in interest).

I appreciate I am probably simplifying here, but I have tried to make my own head understand it, so I'm probably wrong in parts and I haven't allowed for compounding or whatever that word is.

The £5,000 would be split into 12 monthly payments, i.e. £416 odd. But your repayment mortgage would charge more per month, so you are paying off capital as well, say £600 (again figures are probably way off what they really would be).

So the first month, you are paying £416 in interest and £184 off the capital.

The next month, your outstanding balance will be less (because you have paid some capital), say £99,816. 5% on this amount is less than 5% on £100,000 and so you will be paying slightly less interest and more capital because your monthly payment stays the same.

I know the above is all waffley, but it's how I understand it in my head.

There is a calculator:-
http://www.whatsthecost.com/mortgage.aspx