Repayment mortage question

katieoliva

Hi I am new to mortgages and I wanted to ask about repayment mortgages. I've had a mortgage for a few years and I've paid out a fortune but hardly paid off any of the actual loan as my repayments seem to be eaten up by interest charges. I am a bit confused by a comment made by my mortgage broker who said that in the early years of a mortage you pay more interest and towards the end of the term you will be paying off more of the actual amount borrowed. Is this right? I dont understand how this is calculated. At what point do I start to pay off more of the loan than the interest? Can anyone help please? Hope I dont sound like an idiot for asking this!

beecher2

If you do a search for 'locoblade' on these forums, you'll find a handy tool where you can type in your details and get a table which shows you how much interest and capital you pay each month. Seeing it in figures will probably be easier to work out than someone explaining it to you

curlygirl1971

Hi Katieoliva

No you don't sound like an idiot - I think most people have been mystified by mortgages at least at somepoint.

I use Locoblades spreadsheet (although there are others around). It shows me how much in the past, right now and in the future (based on current rates) I'm paying in interest and how much I'm paying in Capital. When I first took out my repayment mortgage, the bulk of my payment was mostly towards interest. It's very disheartening to see this! However after a number of years the balance shifted and now I pay more capital off than interest every month.

Give the spreadsheet a go and hopefully it will clear things up for you. It takes a little time to set up and I also checked the end of month balances on the sheet against my actual records (ie mortgage statement). The spreadsheet was perhaps a couple of pounds out - so fairly accurate then.

EDIT - he has a thread called 'My mortgage excel spreadsheet'. You will find a link to his spreadsheet in his signature. Sorry I can't post it

JasX

For example fixed interest mortgages as these are simplest.(numbers are not accurate but are roughly the right order of magnitude... just don;t try any calculating from them)

you borrow eg £145,000

you repay £800ish per month for 25 years to repay this

you pay interest on the £145,000 at a fixed rate, say 5%pa over the whole term.

in the early years interest on £145,000-135,000 gets added each month (around £600ish) so a smaller chunk of the £800 is left for paying down the mortgage (£200ish). there is always some left to the main amount reduces slowly but 75% of the money is going on interest and only 25% on repayments.

over time (many years) the mortgage will have reduced to say £48,000.

now the 5%pa that gets added each month is only around £200ish permonth leaving £600ish to pay down the mortgage amount.

all this can be calculated exactly (and as interest is fixed monthly amount doesn't change)
so that after 25 years exactly the full amount will be paid off by the last payment.

varying interest rates just add another variable to the mix and every time it changes the original sum needs to be 'recalculated' to if it stayed the same for the remaining term of the mortgage the monthly payments would still exactly pay off the mortgage on the same date. the principal is the same tho

katieoliva

A big thanks to everyone who replied. :T The spreadsheet is brilliant! Its very interesting. I think everyone who gets a mortgage should use it!