Question about mortgage repayments

Lauren-C

Hi I was wondering if anyone could answer some questions I have about becoming a first time buyer...

How is interest calculated on mortgages?
If i borrow £100,000 at 10%, will i be charged 10% on the full amount every year? So basically £10,000 just in interest the first year? Plus repayments of the actual mortgage?
It seems a lot (!), so maybe I'm missing something? (hope so!)

Also, i earn £19000 salary, and have a £30,000 deposit. The apartment i want is £130,000. But one website Ive found says you can usually only borrow 3 or 4 times your salary ... is this right? Or do they make allowances for eg a bigger deposit ?

Thanks in advance !

opinions4u

Lauren-C wrote: »

How is interest calculated on mortgages? If i borrow £100,000 at 10%, will i be charged 10% on the full amount every year? So basically £10,000 just in interest the first year? Plus repayments of the actual mortgage?

More or less. Debt reduces (very slighltly) with each repayment so it would probably be slightly less.

It seems a lot (!), so maybe I'm missing something? (hope so!)

Typical interest rates are around 3.5%-6.5% for a new mortgage at present. But variable rates could, theoretically, increase to 10% and borrowers should look at how they could afford repayments if rates do rise.

Also, i earn £19000 salary, and have a £30,000 deposit. The apartment i want is £130,000. But one website Ive found says you can usually only borrow 3 or 4 times your salary ... is this right? Or do they make allowances for eg a bigger deposit ?

It is possible to get 5 times in certain circumstances. But a 40% deposit would usually be needed.

I'd suggest a chat with a whole of market broker would be a good idea. Prepare a list of questions that you want to ask, and write down the answers.

Find out how much you can borrow - and then borrow less.

InMyDreams

Lauren-C wrote: »

How is interest calculated on mortgages?
If i borrow £100,000 at 10%, will i be charged 10% on the full amount every year? So basically £10,000 just in interest the first year? Plus repayments of the actual mortgage?
It seems a lot (!), so maybe I'm missing something? (hope so!)

Nope, you are not missing anything. That is right. Well, it is slightly more complicated, but that's a very good approximation for the first few years. (In subsequent years the interest will be slightly less as you have paid off part of your loan, so the amount you pay off increases. That's why in the first few years the balance of your mortgage doesn't come down very fast because you have to pay so much interest still.) Also, whilst 10% would be a high interest rate at the moment, so any quotes you get will look much cheaper, there's no guarantee that it won't rise to this in the future. You need to make sure that you can budget for interest hikes if they happen. 10% would not be an unreasonable interest rate to budget for.

Lauren-C wrote: »

Also, i earn £19000 salary, and have a £30,000 deposit. The apartment i want is £130,000. But one website Ive found says you can usually only borrow 3 or 4 times your salary ... is this right? Or do they make allowances for eg a bigger deposit ?

Thanks in advance !

The size of your deposit does not effect how much you have to repay though. On a £19K salary, even if the bank would give you a £100K mortgage, there's no way you could afford the repayments, however big your deposit was. And actually, £30K would not be considered a huge deposit for a £130K place. It's only 23%.

Sorry if that's not what you wanted to hear

Edit: Darn - beaten to it ;-)

Lauren-C

Thank you, to both of you, for answering.

Thats really helpful xx