Calculating equity

pipo

Wondered whether any mathematicians (or anyone astute with numbers) out there can help, as maths isn't really my strongest point.

I wanted to know if there's a way to work out how much equity you've eaten into a repayment mortgage assuming that the property price retains its original value (please don't laugh) throughout the initial fixed-rate term of the mortgage.

Here are some figures:

Value of property: £150,000
Value of mortgage: £112,500
Initial interest rate: 3% for 5 years

Basically, I want to be able to apply a generic formula to my situation and express what i own of the property as a percentage at the end of my fixed-rate term.

Cheers, pipo

alexlyne

Head not up to being able to provide you with a formula, but, if you have this mortgage, then you should have paperwork when you applied for the mortgage that will give you a table showing how much you will have paid each year of a mortgage ( I think it's part of the key facts), and how much debt remains. Look at year 5, which will show you how much of the initial debt you have remaining after the fixed period.

At a guess, you will have paid only a smallish portion of the debt after 5 years, maybe 10-12K, leaving 100ish K remaining. but it depends on other factors, such as the initial timescale of the loan (25yrs, 30yrs?)

Berkshiregirl

Over how many years did you take your mortgage? This affects the answer.

pipo

Berkshiregirl wrote: »

Over how many years did you take your mortgage? This affects the answer.

Ah, yes, of course. Mortgage is 25 years.

LandyAndy

I have a spreadsheet that does this for me, although my mortgage is over a shorter period.

Reckon on between a quarter and a third of your repayments going to reduce capital in the early years.

It takes about 20 years to pay off half the capital on a 25 year mortgage.

bob79

The bloody annoying thing in the UK is that the lenders SVR also comes into play (and the calculation made with that by the lender is not straightforward; I can't make sense of it and I am a mathematician).

For an exact calculation your monthly repayments would need to be known.

But assuming that the SVR of your lender is also 3% you can use the following tool (it's in dollars but that obviously doesn't matter):
http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx
fill in your details and click on amortization table. There is nice mathematics involving geometric series at work here which means that the calculation can be done rather easily by hand as well, but I won't burden you with that....

The calculation with 3% and 25 years gives 96193.66 debt left at the end of the 5 year fixed period. That it probably a good approximation of the real thing which takes the SVR into account.