Mortgage Calculation Help

Distinction · 10 October 2011 at 11:01AM

When we are given the monthly repayment cost how do we know what the interest element is and what the capital(loan) element is?

The reason is, that at the beginning, the interest element is much bigger then the capital element ie. the debt amount?

Thanks in advance!

alexlyne · 10 October 2011 at 11:32AM

as a rough guide only:
if you had a 100K mortgage, and were paying 5% interest, then in 1 year, the interest paid is 5% of the outstanding amount. (5K)
Therefore divide this by 12 to get a monthly amount of interest paid and compare to your outgoing payment. The remaining is the capital repayment.
simples.

TrickyDicky101 · 10 October 2011 at 11:35AM

If you have access to a spreadsheet it is easy - if you want to know the amount at the start then that's easy too as:

Mortgage Balance * Interest Rate / 12 = approx first month interest

Take this off your payment and you know what capital was paid off in month 1.

Assuming you have access to Excel, then the following will calculate the interest on a payment made in the 61st month of a 25 year term mortgage @ 5% interest:

=IPMT(Rate/12,61,25*12,OriginalMortgageAmountBorrowed)

Distinction · 10 October 2011 at 11:44AM

Thanks! My numbers worked out!

A mortgage advisor at Santander didn't know how the calculations worked!

kingstreet · 10 October 2011 at 11:59AM

Most of us rely on the back page of a Key Facts Illustration, I imagine. That shows total amounts paid, interest and capital elements, plus outstanding balance at the end of each year of the mortgage term.