Monthly mortgage payments

Mrsfreshstart2023

Hi all, 

My mortgage deal recently came to an end, I did a product transfer with the same lender. No fees.

My previous rate was 1.
59% and I noticed roughly £400 used to come off the capital with each payment. 

Obviously my new rate is higher 4.49% and my mortgage has increased by just under £200 per month but my mortgage balance only seems to be reducing by £200 per month now. 

Can any of you clever people explain this to me so I can try and get my head around it?

Thank you 😊

Annisele

The higher the interest rate, the less capital you'll pay off each month. Payment are set so that if interest rates stay the same for the whole of the rest of the term, you'll pay an equal amount each month. The more interest there is overall, the higher the proportion of the payment will go to interest rather than to capital.

I think this is easier to think about if you take things to (entirely unrealistic extremes).

Pretend you have a mortgage balance of £100,000 and a term of 10 years.

If the interest rate was 0%, then you'd be paying about £833 a month - and every penny of that would come off your capital.

If the interest rate was 1.59%, then you'd be paying about £902 per month, and about £775ish of it would be capital (less in the first month, more in the last).

At a rate of 4.49%, payments would be £1,036, and about £676ish would be capital (again, less in the first month and more in the last).

Going to the other extreme, say the interest rate is 25%. Now your monthly payment is a whopping £2,275 - of which only about £237 is capital.

Hoenir

Ignore the $ signs. Input your own figures and all will be revealed. 

https://www.calculator.net/amortization-calculator.html

Newbie_John

You've signed up to a fixed rate, so the rate must remain the same for the fixed period.

If your mortgage is £100k, fixed for 10 years and every month £833 would have been taken of capital + interest on remaining balance - the rate wouldn't be static - you would pay in first year 12 months * £833 + 5% of remaining balance £95k (mid year) =£10000 + £4750 (about £1230 a month).
In last year remaining balance would be £10k and estimated payment 12*£833+5% of £5000= £10000+£250=£10250 so £854 monthly.

And as your rate is fixed, you are paying somewhere in-between - £1061 monthly, which at the begin takes less of your remaining balance.

As @Annisele showed correctly, it's more visible with higher interest rates and less with lower rates - like your old 1.5% rate.

Mrsfreshstart2023

Thank you all.

I had assumed when I fixed to a new deal I would just continue to see the same fall each month (roughly) and the 'increase' would just be the extra interest.  

Can I give you my figures to see if you think they are as they should be?

My mortgage is £106,000 over 19 years and 4 months on a rate of 4.49%. My monthly payment is £684. 

Thank you for all of your help 🙏 

Annisele

Mrsfreshstart2023 said:

I had assumed when I fixed to a new deal I would just continue to see the same fall each month (roughly) and the 'increase' would just be the extra interest. 

It's unlikely you'd be happy if your mortgage lender calculated things that way!

If you wanted to pay back the capital at a constant rate, and just cover the interest as it accrued, then your monthly payment would be somewhere around £834. That'd be about £437 for capital (to evenly spread the £106,000 debt over the remaining 232 months of your mortgage), plus about £397 for interest (to cover one twelfth of the annual interest on the debt).

Of course if you do want to do that, it's likely you'll be able to make overpayments (but watch for early repayment penalties).

Mrsfreshstart2023 said:

Can I give you my figures to see if you think they are as they should be?

My mortgage is £106,000 over 19 years and 4 months on a rate of 4.49%. My monthly payment is £684. 

Plugging that term, balance and rate into the calculator @Hoenir linked gives a monthly payment of £684.34, which looks bang on.

stuartp2000

also try the vertex 42 website as they have a mortgage calculator spreadsheet that does monthly so you can see each month and easilly plug in overpayments.
But as Annisele says 684 paying 300 capital a month is about what you would expect so not sure if your 200 is right?