Silly mortgage question

marshio

This may be a silly question but if you've got a 25 year mortgage do you repay one 25th of it every year? Ie if it's £250,000, after completing a 2 year fix you'll have paid off £20,000?

kingstreet

Nope. In the early years you pay off very little capital. You pay mostly interest. On a 25 year mortgage, I reckon you pay off half the capital in the last seven or eight years.

Senior_Paper_Monitor

On a standard repayment mortgege you will pay (considerably) more interest than capital in year one, and the gap will reduce (and the rate of capital repayment increase) and then cross over in later years - simply because you are paying (normally daily) interest on the amount outstanding.

Quote from the KFI on my desk ...

147,600 over 25 years on 5 year fix:

Year 1 Total paid: £11,607 Interest paid: £8,764 Repayment of capital: £2,843

Year 5 Total paid: £11,607 Interest paid: £8,011 Repayemnt of capital: £3,596

Year 24 Total Paid: £10,297 Interest paid: £ 246 Repayment of capital: £10,051

Note: year 24 payments calculated on SVR

Easy !

fashionprincess

If only that was the case. If anything in the first year or so you will sometimes see the balance increase...fees, insurance (if linked on the mortgage, most now aren't!!) and if your interest is daily that would be another factor!!

Slightly disheartening but eventually you will start to see a decrease!!!

Annisele

If (in cloud cuckoo land!) you could find yourself a mortgage with a 0% interest rate, then you would indeed pay off one 25th of it each year of the 25 year mortgage.

The higher the interest rate, the less capital you pay off during the early years.

marshio

Thanks everyone for your replies