Interest

kitkat1909

Hi there, 

My husband and I purchased our first house in 2017, and got a mortgage from Halifax. As well as our own deposit, there were Help to Buy Funds that helped us secure the house that we wanted, meaning that our mortgage started at £156k including fees.

 Our Halifax deal was for 2 years, and was based on us paying for 33 years. After the 2 year deal was up, we shopped around but ended up staying with Halifax who had the best deal at that time. So, in March 2019 we took out another 2 year deal, based on 31 years repayment.

 What I’m confused about is the interest. When I log into our mortgage account, I see the total balance of the mortgage, the payments that we’ve made each month, as well as an interest charge each month. The interest charge varies from one month to the next, it fluctuates by a few pounds each month, sometimes up and sometimes down. Is this normal? Could anyone explain why this happens?

 I’m also unsure if I should expect to see the interest gradually reduce over the years as we pay more off? The interest at the moment is around £320 per month, and we pay £590 per month so more than 50% of what we pay off is being added back on in interest.

 I’m not saying any of this is wrong but would just appreciate a wee bit of help understanding  

 Thanks in advance, 

K

[Deleted User]

Interest is calculated daily on a halifax mortgage so the amount will change depending on how many days in the month and should be decreasing by a small amount each month with the difference coming off the actual debt

re the point about 50% being added on as interest, thats just because of rates at the moment. 15 years ago you would have seen about 90% being added back as interest in the first few years.    

getmore4less

£300pm off the capital will reduce the interest by arpud 50p

Each month has different no of days and payments happen at different times(weekend&BH) which make it different. 

Thrugelmir

kitkat1909 said:

The interest at the moment is around £320 per month, and we pay £590 per month so more than 50% of what we pay off is being added back on in interest.

The longer the mortgage term or correspondingly the higher the interest rate. The longer it will take for more than 50% of the monthly payment to be used to repay the capital balance owed. That's why on here you'll read many comments to overpay your mortgage however small the amount is. The savings will compound over the years. Think of it as rolling a snowball. Starts as a tennis ball then grows the more you work on it.  No wish to depress you, but 31 years is still 372 months of repayments to clear the debt. 

kitkat1909

Thrugelmir said:

The longer the mortgage term or correspondingly the higher the interest rate. The longer it will take for more than 50% of the monthly payment to be used to repay the capital balance owed. That's why on here you'll read many comments to overpay your mortgage however small the amount is. The savings will compound over the years. Think of it as rolling a snowball. Starts as a tennis ball then grows the more you work on it.  No wish to depress you, but 31 years is still 372 months of repayments to clear the debt. 

Thanks! And yes that's very depressing! I have been wondering what the best way to overpay would be - I'm guessing little and often? 
I don't think Halifax have any penalties for overpaying, but I have been wondering about whether I'd be best to pay an extra £xxx per month, or save that £xxx in a savings account so we get a bit of interest on it, and pay that in a lump sum towards the mortgage once or twice a year? My thinking is that the low interest on savings wouldn't be enough to justify that, and I'd be better just paying directly into the mortgage each month

Thrugelmir

Paying down your mortgage can become an addiction. As the effect of overpayments made kick in. Good discipline too. When it comes to spending money on things that you don't really need. 

fewcloudy

kitkat1909 said:
 I have been wondering what the best way to overpay would be - I'm guessing little and often? 

I don't think Halifax have any penalties for overpaying, but I have been wondering about whether I'd be best to pay an extra £xxx per month, or save that £xxx in a savings account so we get a bit of interest on it, and pay that in a lump sum towards the mortgage once or twice a year? My thinking is that the low interest on savings wouldn't be enough to justify that, and I'd be better just paying directly into the mortgage each month

My thoughts are... do either ASAP, even while you're thinking about which is best!
But generally speaking, if savings interest rate is higher than your mortgage rate then probably better to save.  But are you 100% sure you wouldn't use the savings for something else? If not, then overpaying the mortgage is probably best, IMO.

foxy-stoat

Your probably better off paying a £1000 lump sum once you have saved up that much, incase you needed it for something unexpected.  If your paying a few times a year it would be a good idea to pay £1001 the next time and £1002 and so on, so you can track the over payments on the annual statement, just incase they don't get credited to your mortgage account for some reason, unlikely mistake though.

kitkat1909

Thanks all! Very much appreciated!