Settlement figure: Am I misunderstanding something?

pjapk

I have a mixed mortgage, £31,220 total outstanding, £26,154 of which is interest-only, around £5k repayment. I’m currently on SVR of 4.24% with no early repayment restrictions.

I have approx 1yr 9 months remaining on the term and enquired about a settlement figure but having worked it out the figure she came back with was £31,420 !

How can that be? I assumed by paying 21 months early I should at least save 21 months(ish) of interest, obviously bearing in mind the daily interest etc. So this figure was requested if it was paid off today.

When I queried it she said she was limited with what she could do & did I want transferring to someone else which I said yes, but then she transferred me to someone in banking/credit cards so a waste of time.

So, am I fundamentally missing how this is supposed to work or am I right in suspecting that the person I spoke to must have worked out something incorrectly?

Thanks!

ACG

The balance as it stands today is £31,154 plus there will probably be a deeds release fee of maybe £100.

If you work out your monthly repayments for the next 21 months plus the £26,154 (interest only) plus the deeds release fee, it should come to a higher figure than £31,420 - so you are saving on the interest.

BoGoF

Depends what you mean by 'total outstanding' - is the balance taken from your online account, which perhaps does not include interesr to be paid.

Although there is no ERC there is likely to be an admin fee involved which should be detailed in your mortgage offer/paperwork.

davidmcn

pjapk wrote: »

So, am I fundamentally missing how this is supposed to work or am I right in suspecting that the person I spoke to must have worked out something incorrectly?

Almost certainly the former! The redemption balance is broadly speaking whatever it was after your last monthly repayment, plus any accrued interest up to the date you redeem, plus any redemption charges.

The interest you would have paid in the future is irrelevant, as it only becomes due if you still owe a balance in the future.

AnotherJoe

pjapk wrote: »

I have a mixed mortgage, £31,220 total outstanding, £26,154 of which is interest-only, around £5k repayment. I’m currently on SVR of 4.24% with no early repayment restrictions.

I have approx 1yr 9 months remaining on the term and enquired about a settlement figure but having worked it out the figure she came back with was £31,420 !

How can that be? I assumed by paying 21 months early I should at least save 21 months(ish) of interest, obviously bearing in mind the daily interest etc. So this figure was requested if it was paid off today.

When I queried it she said she was limited with what she could do & did I want transferring to someone else which I said yes, but then she transferred me to someone in banking/credit cards so a waste of time.

So, am I fundamentally missing how this is supposed to work or am I right in suspecting that the person I spoke to must have worked out something incorrectly?

Thanks!

None of which is included in your figures above !!
Yes you owe £31,220 now.
But if you carry on paying it for the next 1.9 years you'll pay £31,220 + £2,275 (4.24% int on the £26k for nearly 2 years) +£350 (4.24% on the £5k) totalling 33,840 (very rough numbers)


So yes you were "fundamentally missing" the interest you'd pay over the next two years. You dont double dip and take that off what you owe now !

pjapk

AnotherJoe wrote: »

None of which is included in your figures above !!
Yes you owe £31,220 now.
But if you carry on paying it for the next 1.9 years you'll pay £31,220 + £2,275 (4.24% int on the £26k for nearly 2 years) +£350 (4.24% on the £5k) totalling 33,840 (very rough numbers)


So yes you were "fundamentally missing" the interest you'd pay over the next two years. You dont double dip and take that off what you owe now !

Ahhh, got it! Thanks for clarifying. I think in my head I kind of assumed that they front-loaded the interest (based on seeing previous illustrations pointing out how, at the beginning of a mortgage, more payment goes on interest than capital but it eventually swings the other way).

Makes perfect sense now, thanks!

AnotherJoe

pjapk wrote: »

Ahhh, got it! Thanks for clarifying. I think in my head I kind of assumed that they front-loaded the interest (based on seeing previous illustrations pointing out how, at the beginning of a mortgage, more payment goes on interest than capital but it eventually swings the other way).

Makes perfect sense now, thanks!

Thats not because the interest is front loaded in the terms of adding it on up front. If you borrow £100k they will tell you you owe £100k, not (say) £192,423 even if thats what you end up paying in total. It works out that way because you pay a constant amount each month, and so naturally at the start when you owe £100k nearly all your payment is interest.

At the other end when you've nearly paid it all off, and only owe say £5k then obviously far less of each payment is interest because the interest on £5k is 1/20th the interest on £100k so the rest goes into paying off the capital. Simple maths nothing else.