Help please from anyone who understands interest!

[Ruple]

If I have a loan of £30,000 and the interest I am paying monthly on that loan is £110.20 a month, what is the interest rate please? I do not have a maths brain or any understanding of how this is worked out. Thanks

What does you loan agreement say - the APR should be listed?

How long is the loan over?

And what is the total monthly repayment - if the interest is £110 per month what repayment do you make of the capital £30K owed?

Thanks for your reply.

This is a private loan agreement with my parents so nothing in writing. They remortgaged on to an interest only mortgage for 15 years (back in 2011) and borrowed an extra £30k to give me as a house deposit. I have been paying £110.20 a month as my element of the interest repayment.

The actual £30k loan has not yet been paid off (just needs to be before the end of the mortgage term) but I'm in a position to pay half of it off now. In my mind my monthly payment to my parents should then halve, but they are saying it should stay the same. I wanted to get all the figures sorted in my head before I go back to them with an explanation.

Am I wrong? I don't have a copy of the mortgage paperwork and it's unlikely to be forthcoming. The £110.20 repayment figure was given to me by my parents in 2011 but has never changed in all these years.

What NoSquirrels said.

The internet says its 7.5%.

I guess it comes down to whether they are permitted to pay off early?

If they can take the £15 and pay off that part of the mortgage, then your interest payments should halve.
If however they can't pay off early then you'd need to keep paying the whole amount (whilst probably hanging on to the 15k yourself and using the interest you can get).

That also seems a high interest for these days, though I am out of touch.
(I think they are screwing you over.)

Whether the interest goes down or not would depend on if they can pay the £15k into their mortgage early - I would guess not with an interest only deal?
It doesn't sound like a very good deal for you I have to say, that's a high rate on a mortgage.

So you're paying £1322.40 in interest annually, which is 4.41% of the £30k capital, so I think your APR is 4.41%?

If I'm correct, and I'm not entirely sure, if you're only ever paying the interest off, than £15k capital interest should be halved, as you say.

However, if they cannot repay the lumpsum of £15k off or their interest only mortgage, than they won't be seeing a reduction in their repayments.

I pay 1.9% on a personal loan and 2.9% on a mortgage

See if they can remortgage and get a better deal!

Also you should be able to pay off 10% per year even if you're on a fixed interest deal... if it's a variable not fixed you can pay any amount off and tte interest will decrease

Your parents are pulling a fast one I'd say.

Interest rate is your monthly payment of £110.20 x 12 (how much you pay in a year) and then divided by the £30,000 you are paying the interest on (x100 to see as a %). I work that out at 4.4% which seems about right if that’s based on interest rates 10 yrs ago.

As mentioned your parents may be unable to repay early without penalties. But if they can then yes your monthly payment should half as their interest payments should decrease by this amount.

If they won’t decrease the payments you should keep the £15k. Unfortunately you won’t get anywhere near 4.4% in savings so try and get best rate you can or put into premium bonds and hope you win a big prize.

Other option is for you to offer to pay and early repayment fee - in the long run this could be cheaper than continuing to pay the same interest rate for another 5 yrs on the 15k when you don’t need to.

They can pay off the £15k I will give them without penalty, they have also been paying their own section off in lump sums over the years.

My mum mentioned that I shouldn't halve my monthly payment as they are on tracker interest only mortgage so she thinks it should stay the same? If this is the case surely the rate would have gone down since 2011 and not up? However I admit I am not the best at financial matters.

I don't think I'm being intentionally swindled, they were very kind to offer this opportunity to me, I think they also lack complete understanding how all of this works.

If it's £110 pm just to cover the interest that's 4.4%, which is high for a mortgage rate. Are they still paying that amount? Have they never remortgaged to get a better rate and/or move onto a repayment product in the last 10 years?

Also, if you used the money as a house deposit, where are you with your mortgage? Have you changed your product along the way, what percentage are you paying and what equity do you have?

One solution would be for you to remortgage to get a better rate (you should check your rate every year or so and always change product if your rate is uncompetitive unless you're already on a deal) and also borrow an extra £15k, so you can pay your parents back their £30k and stop paying them the £110 pm.

Your parents can then overpay back onto their mortgage (checking for early repayment limits/payments of course).

I don't have a copy of the mortgage paperwork and it's unlikely to be forthcoming

Why?

BoE interest rate history says that interest rates have only gone down a small amount since 2011 as they were already 0.5% then and were mostly this amount constantly until the start of the pandemic, when they went down to 0.1%

www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp

But that's still a high rate, did your parents have money problems? You've effectively been borrowing your £30k at sub prime rates for the last 10 years.

But your mum is wrong - if you pay off £15k back to her, you should only pay interest on £15k, so about £55 pm, but if at all possible, I'd increase my own mortgage to release the other £15k, repay the lot back to them and just deal with my own finances now. While they might have helped you out at the time, it could have been quite an expensive way of doing it, if you don't know what you're doing and don't check rates a lot quicker than after 10 years.

If it's interest-only then you are paying 4.4%pa as others have said. If this was tracker rate set in 2011, then the interest rate would have moved up and down a bit since then, and since last year has been 0.4% lower than it was in 2011. If that feeds through to the tracker rate then you should be paying £100 now. (Although the flipside is that you should have been paying more than £110 in 2018 and 2019).

www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp

The reason I ask is that you really need to be clear about the terms of your parents’ remortgage product back in 2011 and how much they’re paying, to work out what’s fair.

Unfortunate there’s no agreement between you and them, although I appreciate it’s not a commercial, arm’s length transaction.

Cross-post with Barbara.

I would have though the aim of your payments to your parents would have been to ensure they’re put back into the financial position they would have been, interest-payment wise, had they not borrowed the extra £30,000 to give you your deposit.

They can pay off the £15k I will give them without penalty, they have also been paying their own section off in lump sums over the years.

That’s good. Creates less problems.

My mum mentioned that I shouldn't halve my monthly payment as they are on tracker interest only mortgage so she thinks it should stay the same?

If it’s a tracker interest-only mortgage and you/they pay off £15,000 capital, then the interest charged on the loan will decrease.

If this is the case surely the rate would have gone down since 2011 and not up? However I admit I am not the best at financial matters.
I’d leave this aside - as others say there will have been years when it may have gone up a little - and just concentrate on now. You pay off £15,000, you & they owe less interest.

I’d also urge you to do what BarbaraOfSeville says and try to remortgage yourself to release the extra £15,000 too. Because if there’s only 5 years left to pay this off and you’ll struggle to do so, it’s better to get it all sorted now and your finances separated for certain.

For clarity, I would be very concerned that there is something you don’t know about your parents’ financial position if they are keen to encourage you to keep paying a high interest rate and their interest-only mortgage runs out in 5 years, and they’ll struggle to extend (due to age etc).

If they want to be transparent and show you all the mortgage documentation that would be different. But in these circumstances I think you might in fact be propping up their payments in some way.

Thank you all for your responses you've been very helpful.

Yes they were in a tricky financial situation back then hence the rubbish rate they got.

My mother can be a bit paranoid and defensive so if I ask to see the paperwork I suspect it will get her back up.

I feel much more confident speaking to them now thanks to all of you!

Just wanted to resurrect this thread to ask further advice. I’ve managed to get this sent to my from my mum (see attached photo). She is telling me the interest rate is 2.14% (she was told this on the phone by mortgage advisor).
My brain is now fried I can’t work out how much interest I’m now meant to be paying on the £15k I have left to pay. I didn’t realise that a part of the mortgage they have is capital and that has further complicated things.
She’s been very very defensive and it’s been hard work to get this far. If anyone has a clue how to work this all out using this photo, I would be eternally grateful!

OK, based on 65 remaining payments (July 2021 to December 2026) and a mortgage rate of 2.14%pa, I can pretty much match their calculation:

[1] £16749 repayment balance (ie the part where they are paying off capital and interest) --> monthly repayments £273.13

[2] £55669 interest only balance --> monthly repayments £99.28

Calculation [2] is very straightforward: 55669 x 2.14 / 100 / 12

Total monthly repayments 273.13 + 99.28 = 372.41 (compare the quoted 373.10 which is probably just because they'll be using exact timing around repayments).

What does that mean for you if you owe £15,000 of that and you're only servicing the interest (so when it comes to 2026 you will need to give them £15,000 towards pay that interest-only balance of £56k)?

Simple: 15000 x 2.14 / 12 / 100 = 26.75. You should be contributing £26.75 per month.

@Ruple - is my reply what you needed?

@DadDadDad - it is perfect and I could kiss you! Thank you so much! You've explained it so well.