Help understanding mortgage interest

tylerjaffa

Hello. I’m currently considering moving onto a 10yr fix at 2.34% and my quote shows for £49993, the total amount payable after 12 years is £57,347.72. I assume the difference of 7k+ is the interest?

If this is correct, if I remain on my existing SVR of BOE base rate+2% does this mean that the amount I owe is £49993 (which is the figure I see when I look online) or £49993 PLUS interest?

As I’m sure you’ll gather, what I’m trying to work out is whether moving to a new fix will cost me an extra £7k and if so whether staying on my current deal is worth the risk if I could potentially ‘save’ £7k.

Any help or advice most welcome!

[Deleted User]

57k is the amount you will have paid in monthly payments in 12 years time. So 20 years of fixed rate and 2 years of svr. All includes future interest

Your 49k is your current balance with no future interest added on

tylerjaffa

Thank you - that’s clear about the new fixed rate quote.

Re my existing deal, how can I work out how much interest I’ll be paying for the remaining 12 years. I currently pay £413 per month but I imagine this amount will decrease as the loan does? Or am I totally misunderstanding...current rate is 2.75

KeepOnKnitting

https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

You need to know if the total payable on your current deal is more or less than the new deal including any fees you would need to pay.

getmore4less

tylerjaffa wrote: »

Thank you - that’s clear about the new fixed rate quote.

Re my existing deal, how can I work out how much interest I’ll be paying for the remaining 12 years. I currently pay £413 per month but I imagine this amount will decrease as the loan does? Or am I totally misunderstanding...current rate is 2.75

For most loans and mortgage lender use a technique called Amortization which works out the payment needed so it is the same payment throughout the term on the loan to take into accounthe reducing capital and interest

The maths behind relatively easy(once you know it) but not straightforward this means there are plenty of calculators to do the work that make the process much more like just adding up.

(with some rounding)

If we take your £50k loan over 12years at 2.75%

if that capital was paid off just getting split over 12 years that would be (50,000/(12*12)) = £347pm

then there is the interest to pay, the first month would be on £50k and the last month would be on £347.

(£50000*0.0275/12)=£115
(£347*0.0275/12)= £0.80

this would mean the payment would go from £462 down to £348.

what a amortization calculation does is make the payment the same,
there are loads I tend to use this one (when not using a spreadsheet)

http://www.whatsthecost.com/mortgage.aspx

12years
£50,000 2.75% £408pm interest £8,760 total £58,760.

the fix
£50,000 2.34% £399pm interest £7,397 total £57,397.
(slightly different as it does not have the last 2 years at the higher rate.

typically when comparing against fixed rate you just use the term of the fix so for your fix of 10 years on a 12 year full term.
after 10 years (change calculator to interest only and put in a payment)

£50,000 2.75% £308pm left £9,526 interest £8,486

the 10y fix

£50,000 2.34% £399pm left £9,281 interst £7,161
using the same payment
£50,000 2.34% £408pm left £8,066 interest £7,026

ANY fees to take into account?
lower rate will always be cheaper unless the fees are too high.

Your current variable rate could go down but one 0.25 drop won't be enough it would need two drops at least and for much of the 10years(many think that is very unlikely)


There are other option like look at much shorter terms lower rates and get the debt down with overpayments.


if you took that 10y fix and wanted to pay it off in 10 years

£50,000 2.34% £468pm left £0 interest £6,126


If going for long term fix good idea to shop around this will be the last mortgage you would get.