Paid £65K into 5 year fixed rate – but mortgage only gone down by £10K!!!

lonely_2

Please can someone help? I'm sure this was explained when we took out our mortgage but I can't remember how it works!

We took out £172,000 with Nationwide on a 5.79% fixed rate repayment mortgage for 5 years back in 2002. Recently, we were sent the papers for a new fixed rate product - but I noticed the balance was £163K!! This doesn't make sense. Surely it would have gone down more, especially as we will continue paying the same amount over the length of the mortgage (25 years).

Can someone explain how a basic repayment morgage works?

divadee

for the first good few years you are only ever paying off the interest never the capital off the house.

about year 15 you will see it shoot down in the amount you owe.

as an example we pay £271.83 a month but only about £83 of that comes off the capital the rest is all interest.

They make you pay the interest first and then pay off the capital

Woby_Tide

the interest amount reduces as the capital reduces, in the first few years you pay more interest less capital, over time that reverses

i.e. basic maths when you started paying the mortgage in 2002 on £172k about £829 of your monthly payment was the interest payment, anything over that was paying off the capital, in 2007 on the £163k £786 is now paying interest, the remainder is capital

lonely_2

So if I got a new mortgage for the remainder of the balance would the process of paying mostly interest start all over again?

Woby_Tide

the process is continuous, you still are paying mostly interest so yes it will continue, you won't 'sart all over again' unless you re-extend the term back out to 25 years for example

u109230

Just my 2p's worth here.

I think the principles of all these calculations only apply to 25 year mortgages & over.

IMO if you can afford it, go for an overall mortgage length of 15 or 10 years (especially if remortgaging). Your monthly payments will then be paying off proportionately more capital than interest.

In this case, a 15 year deal would cost approx £1432/month & it would take 2 years to reach the 'switch point' where you start paying more off the capital than interest payments.

dwsjarcmcd

lonely wrote: »

So if I got a new mortgage for the remainder of the balance would the process of paying mostly interest start all over again?

Which is the mistake far too many people make when they remortgage. They extend the term to keep costs down, without realising that they start over again, mainly repaying interest and not much capital

jay7_2

Lonely, have a look at this mortgage calculator:
http://www.allagents.co.uk/calculator/mortgage/

Here you can clearly see how much interest and capital you repay throughout the years.

If you click on "View the graph data in tables" link below the graph, you will see the amounts in tables year by year.

nelly_2

Work out your monthly repayment multiply it by 12 then by 25 thats the figure you pay back......... its probably double what you borrowed isnt it?

makes 5.79% seem like a total lie doesnt it!

absolutebounder

Perhaps the repayment mortgage is not always best advice as some here would have you believe

absolutebounder

Al_Mac wrote: »

What would you suggest as an alternative

Dont think Im allowed to as I am not a FSA regulated mortgage adviser. My mortgages are interest only and I pay lumps off the capital now and again but all I was saying was that if one for example moves a lot the repayment might not be the only good option.