Mortgage repayments

Firsttimebuyer2014

We have recently applied for a mortage with help to buy and we have been approved. We are borrowing approx £126000 but it says the total amount we will repay is £246000!!!!! How is that possible when the interest is only 4%?

It states that for every £1 we borrow we are repaying £1.90. This is worse than a payday loan surly?!

Very confused!!

haras_nosirrah

Nothing like a payday loan. It is 4% a year but over a long period of time e.g 25 years.

As a comparison on a typical payday loan rate of 2000% over the same 25 year period you would pay back 63 million

xyz123

Firsttimebuyer2014 wrote: »

We have recently applied for a mortage with help to buy and we have been approved. We are borrowing approx £126000 but it says the total amount we will repay is £246000!!!!! How is that possible when the interest is only 4%?

It states that for every £1 we borrow we are repaying £1.90. This is worse than a payday loan surly?!

Very confused!!

It's standard. Welcome to life with mortgage. A lot of people don't realise exactly what you found until they get mortgage. As said it's over 25 years or whatever the term of mortgage is. Also 4% may be initial rate for certain period. This reverses to default SVR fro. Lender, which should be stated in mortgage document. NNothing stop you from finding a better deal after any initial fixed term period ends.

PasturesNew

It's normal ... it's because you're borrowing the money over many years. It's nothing like a payday loan.

This year you're paying interest on owing £126k
Next year you're paying interest on owing a bit less
Then the next year a bit less

If you paid it all back after one year it'd just be 4%.
It's 4% each year for what you owe.

picky123

This is the great thing about overpaying, as the interest is cumulative, even a small overpayment each month can save thousands / tens of thousands over the life of the mortgage.

My £125k mortgage will result in £30k of interest instead of £60k, all due to overpayments from the start.

Firsttimebuyer2014

Ok, I feel a little reassured now!

So this is quite standard then when repaying a mortgage? It's just when I asked a friend who got her mortgage a few years back she said they only added on an extra couple of thousand for example she borrowed 150000 and her total amount she pays back over 25 years is 160000.

Thanks for all the help!!

haras_nosirrah

I think your friend is mistaken. 10,000 interest over 25 years with a 150k balance would be an interest rate of 0.02%