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Feel Dumb - confused by mortgage interest

(5 Posts)
MyPatronusIsABadger Thu 22-Sep-16 12:52:23

This will be such a basic question for someone but I really don't understand the mortgage interest and hoped someone could point me in the right direction or explain it to me. I'm sure I can ask at the bank but I don't think its something that should be complicated.

We got our mortgage last year and the interest rate is 3.34%, we're allowed to pay 10% extra as over payments but I normally just round overpayment up to the nearest £10. We've not paid more than we're allowed to.

However, what I don't understand is why our interest goes up and down from month to month (I do 3.4% of amount outstanding then divide that by 12 months I thought?). There's no pattern (that my non financial mind can see) for how much of an overpayment I've made or the length of the month.

For the last few month the amount of interest has been rising by about £5 - £10 per month.

Can someone please explain this to me...I thought the interest went down, even by pennies, because I owe less month on month.

Drowzeee Thu 22-Sep-16 15:55:11

You need to check how your lender calculates interest - some do it daily and if so, it will differ every month due to there being more/less days in some months than others.

It isn't as simple as working out 3.4% of the amount owing and dividing it by 12 months.

MyPatronusIsABadger Fri 23-Sep-16 12:04:05

Thank you drowzeee, it is daily, but months that have the same amount of days have still got the interest amount going up despite months passing where I've paid.

I think I might have to go along to the bank and admit I don't have a clue!

annielostit Fri 23-Sep-16 12:31:35

You won't notice the decrease in interest being added until your loan amount drops substantially.
Our interest was nearly £400 at one point but now is dropping by £££ every few months.

KP86 Fri 23-Sep-16 12:44:45

Calculate and keep a list of how much interest you pay daily per month. You will see that it does down (albeit by pennies) each time.

Eg. Your Sept interest will be from August, so divide the amount by 31 to get your daily figure and so on.

When we first got our mortgage (in Aus), I think interest was $48/day!! These days it's around $40 I think. Still heaps but going down...

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