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# mortgage and interest - clarification

edited 18 August 2015 at 7:22PM
4 replies 573 views
Forumite
111 Posts
Forumite
edited 18 August 2015 at 7:22PM
Hopefully someone here can explain to me how this is worked out.

I recently managed to get onto the property ladder at the start of the summer and have found the interest calculated to be quite a shock.
I put a £55,000 deposit down on my 2 bed flat (£216,000) and have been put on a 25 year mortgage with the interest rate set at 3.18% (£800.73 repayment/ month) which I am overpaying taking it to £910 a month. At the end of each month it adds the interest onto my account and so far this has been in the low to mid £400s -nearly 50% of my monthly payments is getting added back every month! Is this amount of interest right? It seems ridiculously high! :eek:

## Replies

• Forumite
280 Posts
Forumite
Sorry Pocket Saver, That sounds about right.

How interest is calculated:

£216,000 - £55,000 (deposit) = £161,000

3.18% of £161,000 = £5119.80 (Interest owed in year 1)

£5119.80 / 12 = Monthly interest of £426.65

This will go down as the amount you owe reduces but - Horrible isn't it!?! It's a big incentive to get the mortgage paid early!
GOAL:- £200k in Savings be March 2024SAVINGS: – £182,301 COMPLETE GOALS - Debt Free, Mortgage Free, £150k Savings Save 12k in 2022 #60 = £14253 / £15,000
• Forumite
3.6K Posts
The interest is high at the mo because the principal amount of your mortgage is high. As the mortgage is reduced by your monthly payments, the interest figure will reduce. Your monthly repayment will be the same, or you might increase it, and more of it will go to the mortgage and less in interest.

Hope this makes sense, not explained very well

Oops my post crossed with yours and yours is a much clearer explanation
• Forumite
438 Posts
Forumite
As time goes on, less of your £910 will be on interest and more will be on the capital.

So many of us on the MFW board obsess about these % calculations, daily rates, monthly rates.... sigh.

After 3 years we've only recently tipped the balance and now pay more towards capital than interest. But only by overpaying.

You're doing the right thing in overpaying while you can.

Good luck

MIB x
MFW2020 #5 £2,000/2,000 MFW2021 #5 £1,850/3,500MFW2022 #5 £2,780.67/3,000Sep'12 £233,750 Jan'15 £222,329 Dec’21 £139,584 MFiT T4 #24 £48k/£34k MFiT T5 #24 £22,186/£41k MFiT T6 #24 £4,700/£29k
• Forumite
2.9K Posts
Forumite
That's why tiny overpayments make big differences.

Ten pounds now saves 25 years of interest on that ten pounds, so you aren't really paying off ten pounds at all - by my calculations it saves you £7.95 in interest!

That's how I look at it - I pay off £10 and effectively 'save' myself the £7.95 (or equivalent on my figures).

That's real motivation right there.
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