Fixed rates 101

P

pats22

Guest
Hi
I’m sure this will sound like a silly question to most of you but I’m looking for some clarity on an issue re fixed rates and couldn’t get a satisfactory answer out of a bank representative on the phone.

I’m currently looking to fix my mortgage and I was of the perception that you fixed the interest rate – but got the impression off of the person on the phone that it was the repayment figure that was fixed.

So for example if I thought that if I owed

100K at 5% id be paying back the relevant principal amount + 5k in year 1

In year 2 I’d have paid off some of the 100k principal figure so my principal would be reduced to say 90k and I’d pay off some of this and be charged 5% interest on the balance on so on for the remainder of the fixed period – i.e. fixed interest rate on reducing balance hence falling repayments

On the phone I got the impression that the payment figure was fixed for the 5 years. So in the example above in year 1 id be paying 15k
In year 2 another 15k and so on – i.e fixed repayments every month

What I wanted an answer to is if the payment figure is fixed as in scenario 2 is a greater percentage of the payment going to pay off the principal in year 5 compared to year 1 or have I no understanding of how fixed rate repayments work or did I just get totally confused on the phone?

Hope this makes sense
Cheers
p
 
well you kinda fix both repayment amounts and the interest rate at the same time for the 5 years so ye are both right
 
My understanding is (but I'm open to correction...) is that both the rate AND the repayment are fixed.

If you take a 5 year fixed rate of 5% your repayments are set at x amount for 5 years. You pay an interest rate of 5% on the decreasing capital sum. So say you owe 95k after year one you are paying 5% interest on 95k (as opposed to 100k - the original mortgage amount)

I didn't explain that very well but I hope you can mae sense of what I was trying to say - also, I took those figures off the top of my head for the sake of the example I was giving.
 
The rate and the repayments ARE both fixed however the amount of the repayment allocated to the capital repayment (as opposed to the interest) will increase as your loan reduces. For example on a €100,000 mortgage over 25 years at 5% the interest in the first month will be €426.35 and the capital €165.03. In the 60th month the interest will be €379.26 and the capital €212.12. The balance at that stage will be €88,743. (Assuming you make all the repayments on time!)

Sarah

www.rea.ie
 
Thanks for the replies
I just kept getting told "potentially" when I asked would the amount going off the principal increase as time went on and just wanted to double check as I was getting no where on the phone
Cheers
Patrick
 
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