why is this ?

mirry

I spoke to my friend today who has paid off her mortgage last year.

when I told her we have £25,000 left on our mortgage , she said ....
"just you wait and see , it will drop really fast now" she said "it always does when you have around 20 thousand left" .

So why is this ? is it because you have paid off all the interest or something ?

sorry I am not good with these things but hope shes right .

ailuro2

put simply, your mortgage amount stays the same throughout the life of the mortgage if the interest rate remains the same - at the start, say you're paying £600 month mortgage, a big %age of that will be to cover interest and just a small amount goes to reduce the debt.

Fast forward a chunk of years, and of the £600 a lot will be repaying the original debt but only a littl eot cover interest on the smaller amount outstanding - in this case £20,000

I'm not sure it would always be £20K, but yes, in the last years of a repayment mortgage the amount outstanding drops rapidly.:D

play with https://www.whatsthecost.com if you want to see what it's made up of.

kissjenn

Hi,

If you have a traditional interest and capital mortgage then your monthly payments at the start are mostly interest and very little off the main amount. Over time that position changes and as the amount you owe drops then the interest drops and more is paid off the amount.

Its easier to see sometimes (these figures are made up).

If you owe 100,000 in year 1 and pay £1000 per month, then £800 will go on interest and £200 paying off the debt each month.

Year 2 you now owe 97,600 so your £1000 goes to £780 interest and £220 capital.

Year 3 you now owe 94,960 etc etc

Year 17 you now owe 30,000 but the £1000 goes to £250 interest and £750 capital.

Year 18 you now owe 21,000 but the £1000 goes to £150 interest and £850 capital

Year 19 you now owe 10,800 but the £1000 goes to £100 interest and £900 interest.

Year 20 you've paid it off.

So the last few years will eat away at the amount you owe.

Hope that helps and please be aware the figures are just to illustrate your friends point.

mirry

Thank you , that is so helpful .

I look forward to seeing this happen .

weezie_2

Something I've always wondered about....

If you move mortgage providers & don't increase the term or the loan, does the reduction progress exactly as above?