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    • StanHowe
    • By StanHowe 12th Oct 17, 11:48 AM
    • 19Posts
    • 12Thanks
    StanHowe
    Selling Home - What about interest?
    • #1
    • 12th Oct 17, 11:48 AM
    Selling Home - What about interest? 12th Oct 17 at 11:48 AM
    Good afternoon,

    I'm sorry if this seems like a stupid question but I cant find a specific answer on both these forums and the web.

    Scenario:

    We buy a house for 150k - total mortgage agreed is around 240k including interest over 25 years.

    Lets say after 5 years we decide to sell and have been making all the relevant payments.

    My query:

    At the point of sale, does the total interest owed on the mortgage drop or stay the same because the total interest included in the mortgage was based on borrowing over 25 years and not 5?

    Apologies if it makes no sense.

    Thanks.
    Stan.
    Last edited by StanHowe; 12-10-2017 at 11:54 AM.
Page 1
    • gardner1
    • By gardner1 12th Oct 17, 11:51 AM
    • 2,153 Posts
    • 3,039 Thanks
    gardner1
    • #2
    • 12th Oct 17, 11:51 AM
    • #2
    • 12th Oct 17, 11:51 AM
    Makes no sense to me
    • StanHowe
    • By StanHowe 12th Oct 17, 11:57 AM
    • 19 Posts
    • 12 Thanks
    StanHowe
    • #3
    • 12th Oct 17, 11:57 AM
    • #3
    • 12th Oct 17, 11:57 AM
    I guess ill try and explain it better.

    Essentially, you take out a mortgage of XXX amount on the assumption it will be over a 25 year period.

    However, if you decide to sell your home 5/10 years into the mortgage does the total interest owed not change because you arent borrowing the money over a longer period of time and only over 5/10 years.
    • Brighty
    • By Brighty 12th Oct 17, 12:01 PM
    • 710 Posts
    • 371 Thanks
    Brighty
    • #4
    • 12th Oct 17, 12:01 PM
    • #4
    • 12th Oct 17, 12:01 PM
    On a mortgage you pay the interest month by month, you never OWE all the interest at the end. So yes, if you sell after 5/10 years, you'll only pay 5/10 years worth of interest rather than 25.
    • ACG
    • By ACG 12th Oct 17, 12:08 PM
    • 15,504 Posts
    • 7,857 Thanks
    ACG
    • #5
    • 12th Oct 17, 12:08 PM
    • #5
    • 12th Oct 17, 12:08 PM
    The total interest charged is based on a number of assumptions:
    1) you keep the mortgage for 25 years (in your example).
    2) The interest rate follows that in the offer and does not digress from that in the 25 years.
    3) You make all of your payments on time - no overpayments, no late payments.

    If you only keep the mortgage for 5-10 years, then you would not be paying interest for 25 years.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • StanHowe
    • By StanHowe 12th Oct 17, 12:08 PM
    • 19 Posts
    • 12 Thanks
    StanHowe
    • #6
    • 12th Oct 17, 12:08 PM
    • #6
    • 12th Oct 17, 12:08 PM
    Hi Brighty,

    Thats what I thought, thanks for clarifying.

    I was panicking thinking if we took the 25 year mortgage of 240k in total and decide to sell half way through we would still owe the full interest based on a 25 year period.

    Thanks.
    Stan.
    • fewcloudy
    • By fewcloudy 12th Oct 17, 12:08 PM
    • 163 Posts
    • 79 Thanks
    fewcloudy
    • #7
    • 12th Oct 17, 12:08 PM
    • #7
    • 12th Oct 17, 12:08 PM
    They way you've worded it almost makes no sense to me either. However...


    I think you are referring to what your lender said was the total amount to be repaid over 25 years, if you were to borrow 150k right? i.e if you NEVER sold or moved again, by the end of 25 years you'd have paid them 240k in total?


    The interest charged isn't shown on the total owed, it's added to your monthly payments.


    So you borrowed 150k and after 5 years you will have paid some of that off. Your new total owed will just reflect that.


    fc
    Feb 2008, 20year tracker with Sprogget and Sylvester, 0.5% + base for 2 years, then 0.99% + base for life of mortgage. Kudos to my mortgage broker...
    • StanHowe
    • By StanHowe 12th Oct 17, 12:18 PM
    • 19 Posts
    • 12 Thanks
    StanHowe
    • #8
    • 12th Oct 17, 12:18 PM
    • #8
    • 12th Oct 17, 12:18 PM
    The total interest charged is based on a number of assumptions:
    1) you keep the mortgage for 25 years (in your example).
    2) The interest rate follows that in the offer and does not digress from that in the 25 years.
    3) You make all of your payments on time - no overpayments, no late payments.

    If you only keep the mortgage for 5-10 years, then you would not be paying interest for 25 years.
    Originally posted by ACG
    Thanks ACG.

    I am just trying to run through scenarios in my head.

    Is it possible to work out how much you owe yearly if you ever decide to sell up?
    • ACG
    • By ACG 12th Oct 17, 12:34 PM
    • 15,504 Posts
    • 7,857 Thanks
    ACG
    • #9
    • 12th Oct 17, 12:34 PM
    • #9
    • 12th Oct 17, 12:34 PM
    http://www.amortization-calc.com

    Fill that out, imagine the $ is a £ sign and it will be more or less right.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • StanHowe
    • By StanHowe 12th Oct 17, 12:35 PM
    • 19 Posts
    • 12 Thanks
    StanHowe
    They way you've worded it almost makes no sense to me either. However...


    I think you are referring to what your lender said was the total amount to be repaid over 25 years, if you were to borrow 150k right? i.e if you NEVER sold or moved again, by the end of 25 years you'd have paid them 240k in total?


    The interest charged isn't shown on the total owed, it's added to your monthly payments.


    So you borrowed 150k and after 5 years you will have paid some of that off. Your new total owed will just reflect that.


    fc
    Originally posted by fewcloudy
    Yeah that makes sense, thank you.
    • StanHowe
    • By StanHowe 12th Oct 17, 12:48 PM
    • 19 Posts
    • 12 Thanks
    StanHowe
    Loan Amount:

    138000 (-10% deposit)
    $
    Loan Term:

    25
    years

    Interest Rate:

    3.6
    % mortgage rates

    Start Date:
    October 2017

    I have used the above figures.

    So if my understanding is correct, you are in posiitive equity straight away?
    • Ebe Scrooge
    • By Ebe Scrooge 12th Oct 17, 1:01 PM
    • 3,928 Posts
    • 3,321 Thanks
    Ebe Scrooge

    Is it possible to work out how much you owe yearly if you ever decide to sell up?
    Originally posted by StanHowe

    You'll get a statement each year showing Opening Balance, Payments Made, and Closing Balance. The Closing Balance is what you currently owe ( well, what you owed at the time the statement was produced ).


    If/when you do sell ( or if you win the lottery and want to pay it off ), you can just phone them up and ask for a redemption figure - that's the amount you would need to pay today to clear it in full. In practice, when you sell a house the solicitor normally deals with all this - the money received from the sale goes into the solicitor's account, he pays off the mortgage, and returns any surplus to you ( assuming the house sold for more than the outstanding mortgage amount ).
    I may not know much about art, but I know what I like.
    • Ebe Scrooge
    • By Ebe Scrooge 12th Oct 17, 1:09 PM
    • 3,928 Posts
    • 3,321 Thanks
    Ebe Scrooge
    So if my understanding is correct, you are in posiitive equity straight away?
    Originally posted by StanHowe

    Yep, you should be. Taking some made-up figures ... let's say you buy a house today for £100k. You put down a £10k deposit, and take out a mortgage for £90k. If you sell it tomorrow, hopefully you'll get £100k - enough to repay your £90k mortgage. It's very unusual these days to get a 100% mortgage.


    And, in the above scenario, after 1 year you'll owe even less than £90k on your mortgage as you'll have made 12 payments to it ( assuming a standard repayment-type mortgage, rather than an endowment-type where you only repay the interest and no capital ).
    I may not know much about art, but I know what I like.
    • fewcloudy
    • By fewcloudy 12th Oct 17, 1:10 PM
    • 163 Posts
    • 79 Thanks
    fewcloudy
    Loan Amount:

    138000 (-10% deposit)
    $
    Loan Term:

    25
    years

    Interest Rate:

    3.6
    % mortgage rates

    Start Date:
    October 2017

    I have used the above figures.

    So if my understanding is correct, you are in posiitive equity straight away?
    Originally posted by StanHowe

    You're in positive equity if the house is worth more than you owe. So because you put 10% of your own money in as a deposit you almost certainly would owe less than house cost you.
    But house prices fall sometimes, plus there is a cost involved in buying and selling houses such as various fees, solicitor etc.
    Your mortgage rate at 3.6% seems a bit high too, is it fixed for a long time? Was there a fee for that too? Maybe there would be a penalty fee to pay if you had to change or stop the mortgage.
    So it's not quite as simple as saying you owe less than the house cost you therefore you are already in positive equity.
    fc
    Feb 2008, 20year tracker with Sprogget and Sylvester, 0.5% + base for 2 years, then 0.99% + base for life of mortgage. Kudos to my mortgage broker...
    • StanHowe
    • By StanHowe 12th Oct 17, 1:44 PM
    • 19 Posts
    • 12 Thanks
    StanHowe
    You'll get a statement each year showing Opening Balance, Payments Made, and Closing Balance. The Closing Balance is what you currently owe ( well, what you owed at the time the statement was produced ).


    If/when you do sell ( or if you win the lottery and want to pay it off ), you can just phone them up and ask for a redemption figure - that's the amount you would need to pay today to clear it in full. In practice, when you sell a house the solicitor normally deals with all this - the money received from the sale goes into the solicitor's account, he pays off the mortgage, and returns any surplus to you ( assuming the house sold for more than the outstanding mortgage amount ).
    Originally posted by Ebe Scrooge
    Good to know, thank you.

    Yep, you should be. Taking some made-up figures ... let's say you buy a house today for £100k. You put down a £10k deposit, and take out a mortgage for £90k. If you sell it tomorrow, hopefully you'll get £100k - enough to repay your £90k mortgage. It's very unusual these days to get a 100% mortgage.


    And, in the above scenario, after 1 year you'll owe even less than £90k on your mortgage as you'll have made 12 payments to it ( assuming a standard repayment-type mortgage, rather than an endowment-type where you only repay the interest and no capital ).
    Originally posted by Ebe Scrooge
    I dont know why, but I always thought you were in negative equity based on interest owed and until it was paid, hence my question in the thread. I guess not, thanks.

    You're in positive equity if the house is worth more than you owe. So because you put 10% of your own money in as a deposit you almost certainly would owe less than house cost you.
    But house prices fall sometimes, plus there is a cost involved in buying and selling houses such as various fees, solicitor etc.
    Your mortgage rate at 3.6% seems a bit high too, is it fixed for a long time? Was there a fee for that too? Maybe there would be a penalty fee to pay if you had to change or stop the mortgage.[/B]
    So it's not quite as simple as saying you owe less than the house cost you therefore you are already in positive equity.
    fc
    Originally posted by fewcloudy
    Its 2.49 fixed for 2 years then 3.6% however I wanted to base it on worst case scenario at this moment in time.

    From this 1 thread my understanding of mortgages has totally changed and I thought it would be this burden that you had to pay off for XX years before you got into positive equity but I guess not.

    P.S I am at AIP at the moment so geeking up on my understanding of everything.

    Really appreciate everyone's input, big thumbs up!

    • Brighty
    • By Brighty 12th Oct 17, 2:02 PM
    • 710 Posts
    • 371 Thanks
    Brighty
    The 'total amount paid' figure they give you is a bit of a pointless nonsense figure to be honest, as it assumes after your fixed rate ends, you'll sit happily on their standard variable rate for the next 23years and that it will never change (which they do, hence standard VARIABLE rate). When your 2 year fix ends,m you'll be looking to remortgage or take a new deal with the same provider.
    • clairebeth
    • By clairebeth 13th Oct 17, 4:06 PM
    • 117 Posts
    • 31 Thanks
    clairebeth
    Am I right in thinking that you thought they added all the interest up and added it to your mortgage at the start? So you would have been sitting there with a lump sum of £240000 to pay off? No, you borrow the £150000 and interest gets charged either daily or monthly to that and you pay your monthly payment which chips away at it. At the start it will be a case of, for example, paying £800 a month and £500 of that is interest and £300 comes off the principal, so now you're sitting at a balance of £149700 and you're now paying a tiny bit less interest, so, very slowly, your £800 a month becomes more repayment and less interest every month. It's that interest payment, paid each month over 25 years, that they add up to say 'the total amount will be £240,000'. But your balance will be the amount you borrowed which will slowly decrease over time. If you want to reduce the interest you pay, overpay, even by £20 a month, whatever you can afford. Play around with the calculators, it's really interesting to see the effect that overpayment can have on interest and term.
    • dimbo61
    • By dimbo61 13th Oct 17, 5:27 PM
    • 9,495 Posts
    • 5,150 Thanks
    dimbo61
    It is always Good to carefully read the paperwork before signing anything.
    Now a mortgage is

    " Mortgage. "Word nerds will notice an eerie root word in 'mortgage' — 'mort,' or 'death,'" Weller writes. "The term comes from Old French, and Latin before that, to literally mean 'death pledge.'" That may seem a little severe. After all, the home you've bought is somewhere you're going to live "

    So you are borrowing £150,000 to buy this property But if you take 25 years to repay the mortgage you will pay £150,000 Capital and £90,000 in Interest so if possible overpay every month
    • StanHowe
    • By StanHowe 16th Oct 17, 10:21 AM
    • 19 Posts
    • 12 Thanks
    StanHowe
    Am I right in thinking that you thought they added all the interest up and added it to your mortgage at the start? So you would have been sitting there with a lump sum of £240000 to pay off? No, you borrow the £150000 and interest gets charged either daily or monthly to that and you pay your monthly payment which chips away at it. At the start it will be a case of, for example, paying £800 a month and £500 of that is interest and £300 comes off the principal, so now you're sitting at a balance of £149700 and you're now paying a tiny bit less interest, so, very slowly, your £800 a month becomes more repayment and less interest every month. It's that interest payment, paid each month over 25 years, that they add up to say 'the total amount will be £240,000'. But your balance will be the amount you borrowed which will slowly decrease over time. If you want to reduce the interest you pay, overpay, even by £20 a month, whatever you can afford. Play around with the calculators, it's really interesting to see the effect that overpayment can have on interest and term.
    Originally posted by clairebeth
    If I could have worded my query again this is how I would have done it. Yes, this was my initial understanding of how mortgages worked and its a relief it isnt actually how its done. Over paying is certainly something I would want to do.

    It is always Good to carefully read the paperwork before signing anything.
    Now a mortgage is

    " Mortgage. "Word nerds will notice an eerie root word in 'mortgage' — 'mort,' or 'death,'" Weller writes. "The term comes from Old French, and Latin before that, to literally mean 'death pledge.'" That may seem a little severe. After all, the home you've bought is somewhere you're going to live "

    So you are borrowing £150,000 to buy this property But if you take 25 years to repay the mortgage you will pay £150,000 Capital and £90,000 in Interest so if possible overpay every month
    Originally posted by dimbo61
    Thanks for this inspiring quote for a Monday morning
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