Repayment confusion

80y_r4c3r

I thought it was simple maths;

a repayment mortgage of £100,000

£100,000 over 25 years = £4000 per year plus interest

1% = 1000 per year

so total repayable would be:

1% - 5000/year £416/month
2% - 6000/year £500/month
3% - 7000/year £583/month
4% - 8000/year £666/month
5% - 9000/year £750/month
6% - 10,000/year £833/month
7% - 11,000/year £916/month

but when i go on mortgage calculators they show a lower repayment amount.
what am i not getting right here?
also, if a repayment mortgage means you are paying off part of the house as well as interest, lets say after 5 years i wont owe the bank the full £100,000 so if i get another mortgage for the outstanding balance, i should pay less interest????
im very confused

maninthestreet

The total mortgage payment stays the same throughout the life of the mortgage, assuming no interest rate change. The payments in the first few years are made up of mainly interest, with only a small capital repayment. In later years, the interest payment is less, and the capital repayment is larger.

m_13

I find Karl Jeacle's Mortgage Calculator to be a fantastic resource.

If you borrow 100,000 over 25 years at 1% interest then over the 25 years you end up paying £13,061.77. At the beginning you pay more interest and by the end nearly all capital. It's not spread out as you have calculated.

If you use the calculator and put in the figures (don't worry about the inflation figure) then click 'monthly table' you'll see that at the start of the loan in February 2009 you are paying £376.87 per month which consists of £83.33 interest and £293.54 in capital. By the end, January 2034 you'd pay 31p interest and £376.56 in capital.

beecher

You don't pay equal amounts of capital each year - you pay more interest in the earlier years. Best thing to do is to put the details in here

http://forums.moneysavingexpert.com/showthread.html?t=1157173&highlight=locoblade

and you'll see how much capital you'll pay off each year.

After 5 years you wouldn't owe the bank the full £100,000, but would now be in a term 5 years shorter. Ie if you start on a 25 year mortgage of £100,000 you'd remortage on a 20 year term of say £90,000

Robert_Sterling_3

80y_r4c3r wrote: »

I thought it was simple maths

The required mathematics is less simple.
With interest calculated and compounded daily that gives us 9125 calculations over 25 years and that is only a part of it.

getmore4less

Robert_Sterling wrote: »

The required mathematics is less simple.
With interest calculated and compounded daily that gives us 9125 calculations over 25 years and that is only a part of it.

It is very rare(anyone got an example?) for true daily compounded interest with monthy payments to be used.

In most cases the schedule is based on 12 equal months calculations.

Allthough the actual interest is calculated on a daily balance and added monthly the minor deviations being taken out at and annual review and sometimes(depends on lender) at a significant change like interest rate or an overpayment.

Dan_1976

Its not simple math. The formula takes up an a4 page, I had a client ask for it when I worked for a building society. He though he was being clever and could prove us wrong. loved his face when he saw the page!

Robert_Sterling_3

I could not agree more.

Trying_to_be_good

Thanks goodness for Excel and its built-in functions.