Don't understand my current mortgage balance?

dynamoMan

I recently signed up to online banking and it showed me my current mortgage balance. How disapointed was I to see it had hardly shifted!

Am I being done by the bank or I my missing something crucial?

I bought my flat 6months ago and have made 6 payements of around £420 which totals £2520.

My mortgage the bank lent me was fixed rate(5.4% I think) at 90% no fees etc.. Anyway I borrowed £67,500 yet my balance shows roughly £66,950 which looks as though I've only knocked off just £550 off of the debt even though I've given them £2500 so far.

Can anyone help me get my head around this? I thought interest was considered in my monthly payments?

panholio

Interest dude. Have a look at the "for every pound you borrow you will pay X pounds back" bit in your documents.

dynamoMan

Yes for every pound I borrow I give back two effectively. But even if I've paid £2500 then surely you would expect about £1250 to be the reduction. Man this stuff is complicated maybe I'm over thinking it. :eek:

CLAPTON

well you say you borrowed 67,500 at 5.4% and are paying 420 per month

so the first month would pay
67,500x5.4%/12 = 303.75 in interest so you only paid 116 off in capital (assuming that the first month was entirely normal)
then the next month you only owe 67,383
so your interest is 67,383x5.4%/12 = 303.23 and so you have paid off another 116.77 capital
so the next month you only owe 67,383 - 116.77 and so on so after 6 month the capital would reduce by about £700

which doen't quite tie in but that depends exactly what the interest rate is and exactly how the interest is charged.

basically in the early stages of a mortgage most of your money goes in interest as you would expect but slowly the interest paid reduces and more and more goes into capital repayment.

dynamoMan

Thanks that makes alot more sense, I was getting myself in a real muddle trying to do the sums on it. The figures I gave were rough but that seems to fit the situation. :T