4 years on.... Very little repaid ??!!

Minute

Hi,

We are first time buyers, and got a repayment mortgage 4 years ago at a fixed interest rate of 5%.

The yearly statements are very confusing for one, but what really worries me is that it seems that despite the fact that we repay a lot of money every month, AND brought forward some 35 grand deposit to start with, we don't seem to be going anywhere with the repayment.

Looking at the statement, it seems the interest deducted per month is only a few hundred pounds less than the monthly repayment. Is this why the balance on the annual statement barely changes from one year to another? . I don't understand how our mortgage could be repaid in 25 years like this. Effectively, every year, the balance seems to decrease by around £5000 only!!!!

We are due to renew/change our mortgage next year. I'm freaking out at the thought that all this money seems to do nothing towards the repayment of our home, please explain, advice? many thanks..

getmore4less

http://www.whatsthecost.com/mortgage.aspx

put your mortgage details in here.

hit calculate then detail and it will show you the 25 year breakdown of where your payments go.

It's to do with keeping the payments the same each month, thje interest slowly goes down and the capital slowly goes up so near the end they are very little interest and lots of capital

CLAPTON

indeed so
that's the price of paying a loan over 25 years


e.g. if you borrow 100,000 at 5% over 25 years at about 570 per month
then in the early years you are paying about over 400 per month in interest
after 4 years you should have paid off about 10,000 on the capital

of course the initial sum may have had fees, costs etc to the nonimal loan which will make the capital repayment lower

just pay more per month and that will repay the mortgage more quickly and so paying less interest (assuming no penalties for overpaying)

ViolaLass

In the early years, you owe a lot of money, therefore you pay a lot of interest each month. In time, the capital you owe will decrease, you will owe less interest each month and therefore your payments will take more off the capital and your debt will decrease more quickly.

In other words, don't worry.

Rikki

ViolaLass wrote: »

In the early years, you owe a lot of money, therefore you pay a lot of interest each month. In time, the capital you owe will decrease, you will owe less interest each month and therefore your payments will take more off the capital and your debt will decrease more quickly.

In other words, don't worry.

The way I was told in very basic terms was the first years you pay 90% interest 10% balance increasing to the middle years 50% interest and 50% balance and the final years this increases to 10% interest and 90% balance. Not exact percentages but you get my drift.

I am in the last seven years of my mortgage and I am just starting to see this effect.

Thrugelmir

After 15 years into a 25 year repayment mortgage you'll still owe 60% of the original capital. After 20 years you'll owe 31%.

Put another way you'll still owe £31k of a £100k mortgage after 20 years of repayments.

Only one way to address. Make some sacrifices and repay additional capital now.

Minute

Hi all,

thanks so much for your replies.... I know it sounds naive but it's kind of hard to swallow... so much money! I figured out that over 25 years the interest paid is around £180000 !! that's the price of a house!

Okay, so, trying to be practical, how much more money are we talking about in terms of trying to repay more... can you do that every month ? and for how long do you need to do it, before seeing a significant difference in the repayments?

Sorry i'm a bit scattered, i have a couple more questions..

When it comes to renew... would the bank be prepared to negotiate a lower rate after the 5 years if we say we'll go elsewhere if they won't agree? I've seen offers of mortgages in the past at a fixed rate of about 3.4% for one or two years, then higher.... are these worth considering or is there a huge catch with any of these?

Finally, what is better.. fixed or variable? I thought that with fixed rates, at least you don't get any surprises, but what if you get a variable rate that goes up to 7% or something?!!

thanks again

LittleMissAspie

Yep, for every pound you borrow you pay about £2 back. Overpay, overpay, overpay. Every single penny you can overpay makes a difference. You need to check with your bank as to how much you can overpay. Most say you can overpay by 10% of your outstanding balance per year but check with them and they'll tell you what you can pay each month. There are calculators on the internet showing the effects of overpaying, just £50 a month will save you a decent chunk of interest. We are overpaying by about £400 a month on a 20 year mortgage, plus offsetting our savings. We should be able to pay the whole thing off in 6 years.

I doubt the bank will negotiate with you, loyalty doesn't mean a thing these days. Just get the best offer for you.

Fixed or variable, well it's each to their own really. Interest rates can only go up, so a long (5 years) fixed rate is a sensible idea.

Incyder

yes, welcome to the world of homeownership and mortgages.

You just need to get your head down and ignore the figures as it'll lead to melancholy.
Just concentrate on never missing a payment and if you can overpay a bit every month without penalty and you want to, then do so.

In about 20 years time, 3 things should have happened.

1) You'll realise the best years of your life are behind you.
2) Your balance will have gone down drastically
3) your house value should have gone up nicely.

There is no guarantee of number 3, but 1 and 2 are set in stone.

Minute

Thanks LittleMissAspie... Looks like you got it all sorted out !

I cheched the calculator and it seems to make a difference, I mean if overpaying just £50 a month reduces the mortgage by 1.6 years, that's not bad at all. Can I ask you about 'offsetting savings'?.... what does that mean, how does it work ? (yep i'm a money saving expert NOT)

Thanks Incyder for your positive comments ;o)

Rikki

Minute wrote: »

Thanks LittleMissAspie... Looks like you got it all sorted out !

I cheched the calculator and it seems to make a difference, I mean if overpaying just £50 a month reduces the mortgage by 1.6 years, that's not bad at all. Can I ask you about 'offsetting savings'?.... what does that mean, how does it work ? (yep i'm a money saving expert NOT)

Thanks Incyder for your positive comments ;o)

Check this with your lender. My overpayments reduce the balance owing leaving the term the same. You need to arrange with them where these overpayments are allocated and what they do.