Question About Repayment Mortgages

thequant

Assuming your interest rate remains constant, does your repayments fall over time as you are repaying the capital off your mortgage and hence the interest due should fall ?

Thrugelmir

No. Repayments remain constant.

On the basis that interest is charged monthly. Every month you'll pay less interest and more capital.

A simple example if repayments were a £100 per month.

Month 1: £99 interest/ £1 capital
Month 2: £98 interest/ £2 capital

and so on until the capital is repaid.

Wutang_2

thequant wrote: »

Assuming your interest rate remains constant, does your repayments fall over time as you are repaying the capital off your mortgage and hence the interest due should fall ?

Should you be getting a mortgage? Honestly

thequant

Thrugelmir wrote: »

No. Repayments remain constant.

On the basis that interest is charged monthly. Every month you'll pay less interest and more capital.

A simple example if repayments were a £100 per month.

Month 1: £99 interest/ £1 capital
Month 2: £98 interest/ £2 capital

and so on until the capital is repaid.

Thanks, so basically the rate at which the capital is paid off accelerates throughout the term.

So does that then mean, that repayment mortage payments per month will be less than a simple proportion of the capital + accrued interest ?

Thrugelmir

thequant wrote: »

So does that then mean, that repayment mortage payments per month will be less than a simple proportion of the capital + accrued interest ?

Yes.

That's why overpaying your mortgage in the early years is of such great benefit.

As the interest saving is compounded over many years.

kingstreet

A repayment mortgage sees very little capital paid off in the early years, where mostly interest is being paid

For example, £74,000 over 23 years at 3.55% = £392.68 per month.

After 3 years the outstanding capital is £67,512 or 8.77% repaid

After 10 years the outstanding capital is £49,704 or 32.84% repaid

After 15 years, the outstanding capital is £33,563 or 54.65% repaid

After 20 years, the outstanding capital is £13,857 or 81.28% repaid.

Later in the term, there is less outstanding, so more of the capital is being paid off. In this example, roughly half the mortgage is repaid in years 1 - 15 inclusive. The remaining half is then paid off in the last 8 years.

Thrugelmir

Wutang wrote: »

Should you be getting a mortgage? Honestly

Where you born with a knowledge of loans?

Everybody has to start somewhere.