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How Will The Interest Change Affect Your Mortgage Payment?

The media is full of interest rate changes at the moment, leading to lots of questions – will it go down?  What does this mean for my savings?  How will it affect me?

One of the biggest questions people want the answer to is “How will this affect my monthly mortgage payment?”

Well, SAS has a function which can help give you some indication of how the changes will affect you.

The MORT function can be used in several ways. It always takes 4 numeric arguments – but one must be set to missing (.) for the function to work.  The function will calculate and return the missing value.

So, say you have £150,000 mortgage, to pay over 20 years. Your annual interest rate was 2.5%, but has now dropped to 2%. You expect the payment to drop, but by how much? Also, what would happen should interest rates suddenly rise to, say, 10%?

If you run the following code you can get some idea of the impact –

data mort_int;
      input borrowed payment interest period;
      calc=mort(borrowed,payment,interest/12,period*12);
      *assumes monthly payments;
      datalines;
150000 . .025 20
150000 . .02 20
150000 . .1 20
;
run;

Note that payment has been set to missing. Also note that interest has been input as a decimal (so 2% is input as .02), but this is assumed to be spread over 12 monthly instalments. Likewise, the period of 20 years is also converted to months in the calculation.

The following output is produced –

Obs    borrowed    payment    interest    period      calc


 1      150000        .         0.025       20       794.85
 2      150000        .         0.020       20       758.83
 3      150000        .         0.100       20      1447.53

So, your monthly payment should drop by about £35, if your interest rate falls from 2.5% to 2%.

However, if interest were to jump to 10%, you would need to find approximately £650 a month extra.

Please note that this will only give a rough guide to the impact, and not the exact payments you will expect to pay, as it is likely your mortgage agreement is much more complicated.