Monthly interest confusion

havingaball74

Hi all,
I have a fixed rate mortgage.
Looking at my mortgage statement, the amount of monthly interest I am paying fluctuates, sometimes being a higher amount than the month before. Please can someone explain to me how it is calculated? Shouldn't the monthly interest payment amounts go down as the balance is getting smaller?
We've just paid off a big chunk (10%) so shouldn't we see a big drop in the amount of interest we are paying?  The mortgage is with HSBC. 
Thank you. 

MovingForwards

Interest is calculated daily:
More days in the month = more interest
Less days in the month = less interest

TrickyDicky101

And yes you are correct in that if you have paid a 10% (of total outstanding balance) overpayment then you would reasonably expect a reduction in monthly interest charge of c.10% (subject to the number of days as noted by MovingForwards above).

getmore4less

Also payments don't get credited at the weekends/BH  so you get adjustments for that as well

havingaball74

Thank you. Looking back over the past year, in 0ctober 2019 the interest was £139 paid. 8 months later in June 2020 the interest paid was still £139 even though the balance had reduced by £4000. Is that right?

dimbo61

Has the interest rate on the mortgage changed ?

getmore4less

@ 1.5% the interest on £110k is £137.50pm  say £4.60 a day
@ 1.5% the interest on £106k is £132.50 just under  days difference.

whats your mortgage size and rate.

grumiofoundation

havingaball74 said:

Thank you. Looking back over the past year, in 0ctober 2019 the interest was £139 paid. 8 months later in June 2020 the interest paid was still £139 even though the balance had reduced by £4000. Is that right?

£139 monthly interest ~ £4.50 per day

With mortgage rate of 2% £4000 overpayment saves £80 interest per year ~ £6.60 per month

If you want to check would guess would have to check exactly the number of days of interest each months interest payment was. 

MWT

havingaball74 said:

Thank you. Looking back over the past year, in 0ctober 2019 the interest was £139 paid. 8 months later in June 2020 the interest paid was still £139 even though the balance had reduced by £4000. Is that right?

Not sure how old this mortgage is, but it used to be the case that the lenders (particularly the old building societies) would calculate the interest for the next year then fix the payments for the year and then adjust a year later and re-fix for the following year.

So in those cases over-payments did not affect the amount being attributed to interest during the year, but the difference would be adjusted into the the following years payments at the next annual review...

havingaball74

Hi all,
We are on a fixed rate of 1.69%. Balance in question was 96k.
We are currently 3 years into a 5 year fix. We took it out in May 2017.
Without over-payments, just paying the same amount each month, in October 2019 the interest paid was £139. By June 2020 the balance had reduced by £4000 purely by paying the normal fixed monthly amount of £585 (no over payments) but the interest part was still £139. I'm confused because according to my statement the balance was lower, so why still the same amount of interest?
In August 2020 (a few days ago) we paid off 10%.
If you are in a fix, you pay the same each month, but the balance decreases each month because you have a repayment mortgage. Therefore the amount of interest you pay should be lower each month (give or take the adjustment for varying days in the month). So, if I pay £585 a month and £139 of that is interest, the next month the interest should be less shouldn't it as I'm reducing the balance?  Or am I totally confused? Thanks again.

tim_london

havingaball74 said:

Hi all,
We are on a fixed rate of 1.69%. Balance in question was 96k.
We are currently 3 years into a 5 year fix. We took it out in May 2017.
Without over-payments, just paying the same amount each month, in October 2019 the interest paid was £139. By June 2020 the balance had reduced by £4000 purely by paying the normal fixed monthly amount of £585 (no over payments) but the interest part was still £139. I'm confused because according to my statement the balance was lower, so why still the same amount of interest?
In August 2020 (a few days ago) we paid off 10%.
If you are in a fix, you pay the same each month, but the balance decreases each month because you have a repayment mortgage. Therefore the amount of interest you pay should be lower each month (give or take the adjustment for varying days in the month). So, if I pay £585 a month and £139 of that is interest, the next month the interest should be less shouldn't it as I'm reducing the balance?  Or am I totally confused? Thanks again.

A few things don't add up in accuracy to give you an answer, but in a nutshell yes, with repayment mortgage the amount you pay per month stays the same, the % from the monthly payment towards interest lowers and so the amount you pay towards the principal goes up.  When you took out the mortgage you may have got a payment schedule illustration giving you details on how the interest lowers per month, did you check your old documents?

However your number does sound off.  At 96k a 15 year mortgage of 1.69% would have a monthly repayment of £604.16 and a 16 year mortgage would have a £570.99.  So I don't know how you would have £585 unless the 96k had a big rounding error or you remembered the interest rate wrong.

Using the 15/16 year mortgage example above, the interest you start paying on month 1 is around £135.  By year 3 it should have gone down to £110.  The interest should drop by about 70p per month.

You can google 'amortisation calculator', MSE has one but it doesn't show monthly payment schedules.