Selling Home - What about interest?

StanHowe

Good afternoon,

I'm sorry if this seems like a stupid question but I cant find a specific answer on both these forums and the web.

Scenario:

We buy a house for 150k - total mortgage agreed is around 240k including interest over 25 years.

Lets say after 5 years we decide to sell and have been making all the relevant payments.

My query:

At the point of sale, does the total interest owed on the mortgage drop or stay the same because the total interest included in the mortgage was based on borrowing over 25 years and not 5?

Apologies if it makes no sense.

Thanks.
Stan.

gardner1

Makes no sense to me

StanHowe

I guess ill try and explain it better.

Essentially, you take out a mortgage of XXX amount on the assumption it will be over a 25 year period.

However, if you decide to sell your home 5/10 years into the mortgage does the total interest owed not change because you arent borrowing the money over a longer period of time and only over 5/10 years.

Brighty

On a mortgage you pay the interest month by month, you never OWE all the interest at the end. So yes, if you sell after 5/10 years, you'll only pay 5/10 years worth of interest rather than 25.

ACG

The total interest charged is based on a number of assumptions:
1) you keep the mortgage for 25 years (in your example).
2) The interest rate follows that in the offer and does not digress from that in the 25 years.
3) You make all of your payments on time - no overpayments, no late payments.

If you only keep the mortgage for 5-10 years, then you would not be paying interest for 25 years.

StanHowe

Hi Brighty,

Thats what I thought, thanks for clarifying.

I was panicking thinking if we took the 25 year mortgage of 240k in total and decide to sell half way through we would still owe the full interest based on a 25 year period.

Thanks.
Stan.

fewcloudy

They way you've worded it almost makes no sense to me either. However...


I think you are referring to what your lender said was the total amount to be repaid over 25 years, if you were to borrow 150k right? i.e if you NEVER sold or moved again, by the end of 25 years you'd have paid them 240k in total?


The interest charged isn't shown on the total owed, it's added to your monthly payments.


So you borrowed 150k and after 5 years you will have paid some of that off. Your new total owed will just reflect that.


fc

StanHowe

ACG wrote: »

The total interest charged is based on a number of assumptions:
1) you keep the mortgage for 25 years (in your example).
2) The interest rate follows that in the offer and does not digress from that in the 25 years.
3) You make all of your payments on time - no overpayments, no late payments.

If you only keep the mortgage for 5-10 years, then you would not be paying interest for 25 years.

Thanks ACG.

I am just trying to run through scenarios in my head.

Is it possible to work out how much you owe yearly if you ever decide to sell up?

ACG

http://www.amortization-calc.com

Fill that out, imagine the $ is a £ sign and it will be more or less right.

StanHowe

fewcloudy wrote: »

They way you've worded it almost makes no sense to me either. However...


I think you are referring to what your lender said was the total amount to be repaid over 25 years, if you were to borrow 150k right? i.e if you NEVER sold or moved again, by the end of 25 years you'd have paid them 240k in total?


The interest charged isn't shown on the total owed, it's added to your monthly payments.


So you borrowed 150k and after 5 years you will have paid some of that off. Your new total owed will just reflect that.


fc

Yeah that makes sense, thank you.

StanHowe

Loan Amount:

138000 (-10% deposit)
$
Loan Term:

25
years

Interest Rate:

3.6
% mortgage rates

Start Date:
October 2017

I have used the above figures.

So if my understanding is correct, you are in posiitive equity straight away?