Repayment mortgage - interest loaded early on?

evoke

After 9 years of paying off a £95K repayment mortgage I still owe £72K. Is it correct to presume that i've been paying off mostly interest over the last 9 years?

I have effectively paid off just £23K of the capital. Proportionally, I should have paid off £34K.

Am I also correct in presuming that switching to another repayment mortgage on the outstanding balance of £72K would mean that the process of interest loaded in the early years would start all over again?

p00hsticks

evoke wrote: »

Is it correct to presume that i've been paying off mostly interest over the last 9 years?

Yes. In order that the amount you pay is the same throughout the life of the mortgage (disregarding changes in interest rates) , then in the initial years the payments are nearly all interest and very little off the capital. As time passes and you continue to chip away at the capital the proprtion of capital to interest goes up until towards the end your monthly payment consists of relatively little interest and a lot towards the capital.

Running_On_Empty

Yes, poohsticks is correct.
This has always been the way that repayment mortgages are repaid, to my certain knowledge from 40 years ago.

You are not being conned or ripped off, it's just the way it is for all of us.

evoke

Hmm...so changing to another repayment product means starting this interest-loading from scratch again? It doesn't sound like a good deal to me unless to stick with the original mortgage for the full term.

CLAPTON

evoke wrote: »

Hmm...so changing to another repayment product means starting this interest-loading from scratch again? It doesn't sound like a good deal to me unless to stick with the original mortgage for the full term.

no, it simply means that the more you owe the more you pay in interest ... just like if you were a saver the more you save the more interest you earn


so e.g. lets say you borrow £100,000 over 25 years at 5%
that means you pay £578 per month


so in the firat month you owe 100,000
so the interest due is 100,000 x 5% /12 = 407 so you pay 171 capitsal back

so in the seond month you owe 99,629 and so the interest charged is 99,629 x 5%/12 = 407 approx but you pay back 171 so

in the third month you owe 99,658 so the interest will be
99,658 x 5%/12 = 406 so you repay 172

so in the forth month you owe 99,486


...

after 12 months you owe 97,905 so you pay
97,905 x 5%/12 in interest = 399 so you repay 179 in capital
so
in 13rd month etc etc


so you are merely paying the interest each month on the amount you owe

very fair really

evoke

^ Ah, okay, now I understand. Doh!

Charlton_King

CLAPTON wrote: »

no, it simply means that the more you owe the more you pay in interest ... just like if you were a saver the more you save the more interest you earn


so e.g. lets say you borrow £100,000 over 25 years at 5%
that means you pay £578 per month


so in the firat month you owe 100,000
so the interest due is 100,000 x 5% /12 = 407 so you pay 171 capitsal back

so in the seond month you owe 99,629 and so the interest charged is 99,629 x 5%/12 = 407 approx but you pay back 171 so

in the third month you owe 99,658 so the interest will be
99,658 x 5%/12 = 406 so you repay 172

so in the forth month you owe 99,486


...

after 12 months you owe 97,905 so you pay
97,905 x 5%/12 in interest = 399 so you repay 179 in capital
so
in 13rd month etc etc


so you are merely paying the interest each month on the amount you owe

very fair really

Sorry but can you explain this figure of £578?

Thrugelmir

On a 25 year repayment mortgage. 3/5ths of the original capital advance is still owed after 15 years of repayments.

So on a £150k mortgage - £90k is still outstanding.

Thats why overpaying any sum makes such a difference to reducing the mortgage term.

jonnyd281

Its the monthly payment where the interest rate is 5% and the loan of £100K is over 25 years. Its slightly more than my payments for a similar size mortgage.

blueberrypie

Charlton_King wrote: »

Sorry but can you explain this figure of £578?

Although the amount owed (and therefore the interest charged) is higher at the beginning of the mortgage, the lender works out a figure which, if paid every month, produces a zero balance at the end of the mortgage.

So if you borrowed £100k over 25 years, the lender would work out how much you need to pay every month for those 25 years so that your payment would always be the same and so that after 25 years your balance owing would be zero.

(The payment is worked out using the initial interest rate on the mortgage, as it wouldn't be possible to work it out using future interest rates.)

Alan_Cross

blueberrypie wrote: »

Although the amount owed (and therefore the interest charged) is higher at the beginning of the mortgage, the lender works out a figure which, if paid every month, produces a zero balance at the end of the mortgage.

So if you borrowed £100k over 25 years, the lender would work out how much you need to pay every month for those 25 years so that your payment would always be the same and so that after 25 years your balance owing would be zero.

(The payment is worked out using the initial interest rate on the mortgage, as it wouldn't be possible to work it out using future interest rates.)

Resurrecting this one.

Ok so we have:

£100k borrowed on a repayment basis over 25 years at an initial rate, say, of 5%.

I too would be interested in seeing the maths which arrives at a monthly repayment of £578.

I'm not contesting it - just would be grateful to see the mechanism if anyone can be so kind as to run it past me.