calculation of reduced repayment on reduction of interest on mortgage

[donegal]

Can someone point out the flaw in my logic here please?

I have a c€117,000 3.15% fixed rate repayment mortgage (15 years left)which I have managed to move to a 3.05% tracker on the completion of the fixed term (this month). My repayments (cap + int) were c€821 pcm under the fixed rate which has now been reduced to €815 pcm under the tracker (remaining term still 15 years).

A simplistic calculation of interest under the fixed rate comes to €3,686 pa(€117k@ 3.15%) which works out at €307 pcm. Applying the same calcualtion to the new rate comes to €3,569 or €297pcm. In other words, I would expect a €10 drop in my repayments rather than just €6.

Whilst I can recover from the loss of €4 pcm (!) I just wondered whether anyone can see why in principle this difference arises.

donegal.

 

[daltonr]

I just broke out my trusty Texas Instruments BAII Plus and keyed in your figures.

117000 @ 3.15% for 15 years (180 Payments)
I get a repayment of €816.45

117000 @ 3.05% for 15 years (180 Payments)
I get a repayment of €810.80

Now, the repayments don't match your actual repayments, but it's
interesting that the difference is €6 just like you discovered.

I can never seem to get my calculated figures to match those I
see quoted, or those I get from online calculaters.

-Rd

 

[calculator]

I just broke out my trusty Texas Instruments BAII Plus and keyed in your figures.

117000 @ 3.15% for 15 years (180 Payments)
I get a repayment of €816.45

117000 @ 3.05% for 15 years (180 Payments)
I get a repayment of €810.80

Now, the repayments don't match your actual repayments, but it's
interesting that the difference is €6 just like you discovered.

I can never seem to get my calculated figures to match those I
see quoted, or those I get from online calculaters.

-Rd

If I stick in 178 months and 117000 to my OpenOffice spreadsheet, I get:

821.11 @ 3.15%
815.35 & 3.05%

Tweaking the 117000 upwards a bit would do it as well.

A.

 

[calculator]

Can someone point out the flaw in my logic here please?

I have a c€117,000 3.15% fixed rate repayment mortgage (15 years left)which I have managed to move to a 3.05% tracker on the completion of the fixed term (this month). My repayments (cap + int) were c€821 pcm under the fixed rate which has now been reduced to €815 pcm under the tracker (remaining term still 15 years).

A simplistic calculation of interest under the fixed rate comes to €3,686 pa(€117k@ 3.15%) which works out at €307 pcm. Applying the same calcualtion to the new rate comes to €3,569 or €297pcm. In other words, I would expect a €10 drop in my repayments rather than just €6.

Whilst I can recover from the loss of €4 pcm (!) I just wondered whether anyone can see why in principle this difference arises.

donegal.

Hi again, I didn't really answer your question last time.

Your logic would be OK if you were repaying only the interest and not the principal as well.

As time goes by, the principal goes down, but you continue to pay the same amount back per month; the interest portion declines over time and the principal repayments portion increases.

With the lower interest rate, you're actually paying back a bit more of the principal at the start per month, but less at the end.

If it's any clearer, do your calculation for every month of the 15 years, you'll see that the saving appears smaller than you expected at the start, but greater at the end (when the difference between the interest @ 3.15% and @ 3.05% is smaller). E.g. - imagine when you owe 11,700, your calculation would show that you should pay 1 EUR less per month, but you are paying 6 less, so this is sort-of where the 4 EUR per month is!

Not sure if that was any clearer, but the gist is there, somewhere!