When do you start paying off capital?

Bear_family

I've been steadily overpaying my mortgage since we took it out about 3 1/2 years ago with a 25 year term. We're now down to about 14 1/2 years and my question is when/do you ever get to the point term wise when you are just paying off the capital and not interest, or are you always charged interest?

Sorry if this seems like a really daft question. I just know when we took the mortgage out we had a breakdown of how much our normal monthly payments actually went towards capital and what interest we were paying too, but I can't find that piece of paper.

Thanks,

BF

Soubrette

Bear_family wrote: »

I've been steadily overpaying my mortgage since we took it out about 3 1/2 years ago with a 25 year term. We're now down to about 14 1/2 years and my question is when/do you ever get to the point term wise when you are just paying off the capital and not interest, or are you always charged interest?

Sorry if this seems like a really daft question. I just know when we took the mortgage out we had a breakdown of how much our normal monthly payments actually went towards capital and what interest we were paying too, but I can't find that piece of paper.

Thanks,

BF

You will always be paying interest on the capital that you owe.

On a normal capital and interest repayment mortgage you start off paying a little bit of the capital and thus a lot of interest but as the capital is slowly reduced...so is the interest (so more of your monthly payments pay off the capital). By the end of the term you will be paying off mostly capital each month.

If you overpay then those overpayments should come off the capital (which of course reduces the amount of interest you have to pay over the rest of the term so again, more of your monthly payment is put against the capital).

This is why people on a variable rate mortgage have payments that go up and down with their interest rate, so they stay on target to paying off the whole mortgage at the end of their term.

Some people find out when it is best to overpay on their mortgage as different lenders add interest at different times eg daily/monthly or annually. I think Martin has an article about this somewhere.

Sou

kennyboy66_2

for a 25 year repayment mortgage, you are always paying off interest & capital but the proportion changes month by month.

It depends on what interest rate you are paying but at 6%, you start to pay more capital than interest in year 14.

In year 11 (you have 14.5 years left), assuming 6% interest rates approx 40% of your monthly payment is going towards paying off the capital & 60% is paying the interest on the current capital sum outstanding.

If interest rates ever jump to say 14% again, you find that on a 100k mortgage you pay £72k in the first 5 years but pay off less than £4k of capital.

and some people want higher interest rates!

If you have microsoft excel there is a nice template called Loan Amortization where you can see you yourself - I am sure there are similar free tools on the net.

ailuro2

If you pay £1000 a month in your mortgage payment, at the beginning as the amount owed is so high, most of it will go in interest payments and a little to repaying the debt. As time goes on, the amount you need to pay interest on lessens, so more of your mortgage payment goes to paying off the debt, so the rate of interest you pay is the same, and your mortgage payment is the same, but you are paying out less in interest. iyswim.

I made up an excel sheet myself to show me how much interest we pay every month, and keep a track of our outstanding balance (apart from doing my signature for MFi3 here).

It's very easy, it's just the outstanding balance on the mortgage multiplied by 1/12th of your interest rate, this will tell you how much of your mortgage is interest.:D

trishaltbr

Thanks for this nice post...I really appreciated it. I also do paying my mortgage for 25 year term... I am happy becuase it helps towards paying my mortgage there I've got number of options that I can consider. :T