Mortgage Special Rates

wilkesy1979

Hi all, 

Just had my mortgage statement through and to be honest, im frustrated! 

I had a fixed deal term with Virgin thats coming to an end. Im paying around £900 a month but for the fixed period, the actual amount that is coming off my mortgage amount is only around £400, that means that £500 is going to interest costs?? Is this right?? Thats around a 60% interest rate per year

Im thinking of taking out another rate somewhere, but is it more cost effective to go for a longer term, ie 30 years so the monthly payments are low and simply overpay the extra per month to come directly off the amount owed and not the interest??

Thanks
Paul

la531983

You want to pay less interest overall yet you want to increase the term?

Does not compute. 

MattMattMattUK

wilkesy1979 said:

Hi all, 

Just had my mortgage statement through and to be honest, im frustrated! 

I had a fixed deal term with Virgin thats coming to an end. Im paying around £900 a month but for the fixed period, the actual amount that is coming off my mortgage amount is only around £400, that means that £500 is going to interest costs?? Is this right?? Thats around a 60% interest rate per year

Im thinking of taking out another rate somewhere, but is it more cost effective to go for a longer term, ie 30 years so the monthly payments are low and simply overpay the extra per month to come directly off the amount owed and not the interest??

Thanks
Paul

It is not a 60% interest rate, it is 60% going on interest repayments.

Increasing the term will mean you pay more interest and is not more cost effective, though it can result in lower monthly payments which is a different thing entirely.

Pay more every month, the percentage you pay as interest will go down and you will pay the mortgage off quicker. One is normally limited to a maximum overpayment of 10% of the outstanding total per year. 

silvercar

Mortgages are set up so that you payment over the whole term, not just the fixed rate deal length, are the same throughout. This means that more of the payment in earlier years goes to pay interest and less to capital. 

Jemma01

You've asked two questions one about the calculation, and one about extending the term

1) The amount of interest you pay is the percentage of interest on the whole amount, not the monthly amount. 

Eg. For 40k outstanding balance on a tracker with 20yr term, I'm paying £286 monthly and £140 interest (3.94% over the 40k). Which is 49% if we look at it your way 🤔.

2) for extending the term:

If you were on tracker, I'd say make it the longest term because you can overpay as much as you want with no penalty or % restriction for overpayments (I went for 20yr term to reduce the monthly payment in case I lose my job). But doing that for a fixed rate will cause the opposite effect. You want your monthly payments to be (1) high for a shorter period and (2) your 10% overpayments to be of decent size to pay the mortgage asap. The longer the term, the longer you pay interest.

E.g. let's say your mortgage is 100k, your interest is 5%, your term is 20yrs. The total interest you'd pay with 10% overpayments (of outstanding balance) is 23.9k, but if you did 10yr term +10% overpayments, the total interest paid is 16.9k.

Some (probably rare) lenders make the 10% yearly overpayment of the original balance (ie 100k) and majority lenders make overpayments of outstanding balance/yr (eg 40k). The original amount means 10k/yr overpayments every year, and the 2nd means 4k/yr and will reduce every year to reflect outstanding balance. So the first one will result in faster mortgage payments (less interest overall).

If I go back to the example of 100k and assume 10% overpayment of original balance, instead of 23.9k interest total, it will be lower to 19.3k total over the 20yr mortgage period, or 6.2k total for 10yr term.

Ayr_Rage

wilkesy1979 said:

Hi all, 

Just had my mortgage statement through and to be honest, im frustrated! 

I had a fixed deal term with Virgin thats coming to an end. Im paying around £900 a month but for the fixed period, the actual amount that is coming off my mortgage amount is only around £400, that means that £500 is going to interest costs?? Is this right?? Thats around a 60% interest rate per year

Im thinking of taking out another rate somewhere, but is it more cost effective to go for a longer term, ie 30 years so the monthly payments are low and simply overpay the extra per month to come directly off the amount owed and not the interest??

Thanks
Paul

To better understand how it works have a look at this

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

ACG

Google an amortizization calculator. 
It might help to get a visual idea of how your repayments are split. 

In the early years, more of your payment goes towards interest than the balance and in the latter years it is the opposite. 

The rate you pay and the term will play a part in those factors. All lenders are the same though (bar sharia mortgages, they work a little different but the maths will probably be fairly similar) and maybe offset mortgages if you have a decent chunk of savings. 

BikingBud

The lines are generally symmetrical and inverted.

Red = Green + Blue

At the start 1270 = 190+1080

At the end 1270 = 1270 +0