How do you calculate mortgage interest

CYMRUAMBYTH123

Hi. This has been puzzling me for a long time and I need to clear it up as my fixed rate is coming to an end in Sept 2008 and I may need to look at other alternatives in paying off my mortgage.
I took out a 3 year flexible fixed repayment mortgage with the woolwich in sept 2005 for £90,000. The monthly repayments are £520.38 (£6244.56 a year.
My question is: After 3 years I would have paid £18733.68 but the balance on my mortgage today(12/8/08) is a little over £84000.
According to my sums I am paying off approximately £2000 a year off my mortgage, and an astonishing over £4000 interest a year to these greedy gits.
If my mortgage is calculated to be paid off in 25 years I would only have paid approx £50000.
Sorry if this sounds a little simple but I have hunted for an explanation in my woolwich documentation and all over the intenet but have not stumbled across anything which answers my question.
Hope you can help.

~Beanie~

In the early years of a mortgage your repayments always cover far more interest than capital. The capital gradually decreases over the term of the mortgage so you pay less interest, when you get towards the end, your repayments would be paying mostly capital and less interest.

I'm sure someone will explain it better in a minute but that is basically how it works!

ixwood

As above, it's mostly interest in the 1st few years. That's why overpaying early and/or reducing/not increasing the term at remortgage time is crucial to paying it down quicker.

And also why remortgaging every 2 years and adding the fees to the mortgage is daft, as you end up getting nowhere.

CYMRUAMBYTH123

Thankyou both for the advice, it's very much appreciated. When I remortgage in September would it be worth me re-mortgaging over 21 years rather than the 22 years as it doesnt work out a great deal more a month.

techno12

Yes!

I remortgaged for the first time a couple of months ago, and have knocked the term down from 27 years to 22 years. The best thing is I'm now paying the same each month as I would have if I'd been lazy and just stayed with my old provider (as I'd have been shunted onto their expensive SVR as my 2 year fix was up), so I've knocked 5 years off for free!

ixwood

The shorter the term the less interest paid in total. You can either reduce the term or overpay (overpayments go straight off the capital, reducing your debt and therefore your future interest).

Overpaying is probably safer though, as if things get tight, or you lose your job, fall ill etc, you;re not stuck with the higher payment.

It's worth overpaying as much as possible as it really does save you a lot of money. I'm sure most people don't realise just how much interest they've paying the banks.

People have been brainwashed into thinking a mortgage is something you have most of your life, and just borrow as much as they can without doing the mathes.

On your debt of 84k, a 6% mortgage will cost £5040 in interest per year (84000 * .06), so well worth paying as much as you can back ASAP.

ixwood

As an aside:- [FONT=Arial,Helvetica,sans-serif][FONT=Verdana,Arial,Helvetica,sans-serif]Mortgage: In the word mortgage, the mort- is from the Latin word mori (via old french mort) for death and -gage is from the sense of that word meaning a pledge to forfeit something of value if a debt is not repaid. So mortgage is literally a death pledge. [/FONT][/FONT]


There's no way my mortgage is going to be a pledge to the death. I want it gone in 10 years max!

maninthestreet

CYMRUAMBYTH123 wrote: »

Hi. This has been puzzling me for a long time and I need to clear it up as my fixed rate is coming to an end in Sept 2008 and I may need to look at other alternatives in paying off my mortgage.
I took out a 3 year flexible fixed repayment mortgage with the woolwich in sept 2005 for £90,000. The monthly repayments are £520.38 (£6244.56 a year.
My question is: After 3 years I would have paid £18733.68 but the balance on my mortgage today(12/8/08) is a little over £84000.
According to my sums I am paying off approximately £2000 a year off my mortgage, and an astonishing over £4000 interest a year to these greedy gits.
If my mortgage is calculated to be paid off in 25 years I would only have paid approx £50000.
Sorry if this sounds a little simple but I have hunted for an explanation in my woolwich documentation and all over the intenet but have not stumbled across anything which answers my question.
Hope you can help.

You're paying about 5% p.a interest, which isn,t extortionate.
Try this mortgage calculator:

http://www.jeacle.ie/mortgage/uk/