Mortgage loan question.

tony3619

I've noticed that since my Interest rate went up the amount of the actual loan I'm paying off each month has decreased by £60 a month? 

How is this calculated? I would of thought if a loan was spread over X amount of years the amount of the loan you repay  each month would remain the same but the amount deducted for interest would increase equalling the higher payment? 

junglist_matty

Have you recently switched your mortgage to a new deal?

TheAble

It doesn't quite work like that. Because capital is being reduced every month then the amount of interest owed is also reducing, which means you'd end up with a variable payment. But because you pay a fixed payment, a portion of it goes on interest (which will be a higher proportion the more capital is owed) and the remaining amount goes on capital.

So next month maybe you'll see capital repaid has decreased by £59, then the next month £57 etc...

tony3619

junglist_matty said:

Have you recently switched your mortgage to a new deal?

Yes I have 

tony3619

So my monthly payment is £402.  £299 is deducted as interest meaning what I'm paying off the actual loan each month is £103? Over the remaining term that wouldnt cover the remaining amount? 

Am I working this out completely wrong? 

housebuyer143

tony3619 said:

So my monthly payment is £402.  £299 is deducted as interest meaning what I'm paying off the actual loan each month is £103? Over the remaining term that wouldnt cover the remaining amount? 

Am I working this out completely wrong? 

As you pay off more capital the interest will reduce so your capital payments each month increase. 
The beginning of a mortgage is mostly interest and at the end, mostly capital. The capital and interest payment split will change over the life of the mortgage. 

tony3619

housebuyer143 said:

tony3619 said:

So my monthly payment is £402.  £299 is deducted as interest meaning what I'm paying off the actual loan each month is £103? Over the remaining term that wouldnt cover the remaining amount? 

Am I working this out completely wrong? 

As you pay off more capital the interest will reduce so your capital payments each month increase. 
The beginning of a mortgage is mostly interest and at the end, mostly capital. The capital and interest payment split will change over the life of the mortgage. 

Ah ok that makes sense! Thank you