Confused on mortgage rates

grayson

I've been on a fixed rate for 5 years on a 2.14% rate. Monthly payments £241. It comes to an end at the end of the month and my new monthly repayment is £307 at 6.37%.. 

I owe 31,500

I thought 6.37% of a 100 is 6.37 x3 =19.11

So why has my monthly payments gone up by £66?

Surely percentage wise it should have only increased by £19 at the most. What am I missing? 

JGB1955

Your interest rate has gone up from 2.14% to 6.37% - three times your original payment. 

grayson

I know. How does the percentage of 6.37% equate to £66?

241 plus 6.37% is 256. Where does 307 come from? 

housebuyer143

You are not really giving any figures.

Are you on repayment or interest only? How much do you pay now, how much is your new payment? What term are you borrowing over.

I can't understand where you get £19 from on a rate that is 3xs what you have now.

grayson

31,500 over 13 years repayment. 

MFWannabe

Put the numbers into a Mortgage calculator and you will understand it.  

It’s to do with the interest rate, interest at 2.14% is approx 4k, at the higher rate of 6.37% is approx 14k on the amount you owe 

singhini

Ive never fully understood mortgages (i doubt anyone does) but it goes something like this:
The bank have lent to you based on compounded interest on a daily basis. You repay them a small fraction of money on a monthly basis and therefore the loan/debt creeps up. Example: its Monday morning and your mortgage is £100,000 and if we were to look at your situation randomly 23 days later, you would owe the bank £100,000 + 23 days of interest at x.00% (hence the debt has gone up even before you have paid anything back). After typically 25 years, you have paid them 1.5 times what you initially borrowed.

your repayment of £241 covers both a capital element aswell as an interest element (same for the £307).
However when you were handing over £241 each month, you think your paying both the capital and the interest but its uneven i.e. in year one you are paying no capital just interest and by the end of the mortgage it is the opposite way round (which is why your struggling to work out / correlate why £307 @ 6.37% is not the same as £241 @ 2.14%)

so if we look at your figures in year 1, its something like this:
You pay 12 * £307 = £3,684 towards your mortgage, leaving £29,822.64 (of the £307, £167 is interest: £31,500 / £100 * 6.37 / 12 = £167.22), However you are paying back monthly but are charged daily.
i.e. interest ontop of interest daily with a flat monthly repayment which is paid in arrears. 

Ive just gone into a website and typed in your figures i.e. £31,500 @ 6.37% for 13 years and its suggesting a repayment of £298 (which is inline with your £307).


When you wrote in your initial post "I thought 6.37% of a 100 is 6.37 x3 =19.11" 
Your not compounding the interest daily 
Its a bit like saying 1 becomes 2 then becomes 3 then becomes 4 etc. While the bank calculate it 1 becomes 2 becomes 4 becomes 8

singhini

MFWannabe said:

Put the numbers into a Mortgage calculator and you will understand it.  

It’s to do with the interest rate, interest at 2.14% is approx 4k, at the higher rate of 6.37% is approx 14k on the amount you owe 

Well said

I spent 45 minutes writing my essay post, you made the point very simply (bravo)

grayson

singhini said:

Ive never fully understood mortgages (i doubt anyone does) but it goes something like this:
The bank have lent to you based on compounded interest on a daily basis. You repay them a small fraction of money on a monthly basis and therefore the loan/debt creeps up. Example: its Monday morning and your mortgage is £100,000 and if we were to look at your situation randomly 23 days later, you would owe the bank £100,000 + 23 days of interest at x.00% (hence the debt has gone up even before you have paid anything back). After typically 25 years, you have paid them 1.5 times what you initially borrowed.

your repayment of £241 covers both a capital element aswell as an interest element (same for the £307).
However when you were handing over £241 each month, you think your paying both the capital and the interest but its uneven i.e. in year one you are paying no capital just interest and by the end of the mortgage it is the opposite way round (which is why your struggling to work out / correlate why £307 @ 6.37% is not the same as £241 @ 2.14%)

so if we look at your figures in year 1, its something like this:
You pay 12 * £307 = £3,684 towards your mortgage, leaving £29,822.64 (of the £307, £167 is interest: £31,500 / £100 * 6.37 / 12 = £167.22), However you are paying back monthly but are charged daily.
i.e. interest ontop of interest daily with a flat monthly repayment which is paid in arrears. 

Ive just gone into a website and typed in your figures i.e. £31,500 @ 6.37% for 13 years and its suggesting a repayment of £298 (which is inline with your £307).


When you wrote in your initial post "I thought 6.37% of a 100 is 6.37 x3 =19.11" 
Your not compounding the interest daily 
Its a bit like saying 1 becomes 2 then becomes 3 then becomes 4 etc. While the bank calculate it 1 becomes 2 becomes 4 becomes 8

You are a genius my friend. I understand it now. Thank you for taking the time to explain it. I always thought the interest was calculated monthly. 

matt1983

grayson said:

I've been on a fixed rate for 5 years on a 2.14% rate. Monthly payments £241. It comes to an end at the end of the month and my new monthly repayment is £307 at 6.37%.. 

I owe 31,500

I thought 6.37% of a 100 is 6.37 x3 =19.11

So why has my monthly payments gone up by £66?

Surely percentage wise it should have only increased by £19 at the most. What am I missing? 

The 6.37% of a 100 is 6.37 x3 =19.11 bit has seriously confused me 🫤