Selling Home - What about interest?

Ebe_Scrooge

StanHowe wrote: »

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

You'll get a statement each year showing Opening Balance, Payments Made, and Closing Balance. The Closing Balance is what you currently owe ( well, what you owed at the time the statement was produced ).


If/when you do sell ( or if you win the lottery and want to pay it off ), you can just phone them up and ask for a redemption figure - that's the amount you would need to pay today to clear it in full. In practice, when you sell a house the solicitor normally deals with all this - the money received from the sale goes into the solicitor's account, he pays off the mortgage, and returns any surplus to you ( assuming the house sold for more than the outstanding mortgage amount ).

Ebe_Scrooge

StanHowe wrote: »

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

Yep, you should be. Taking some made-up figures ... let's say you buy a house today for £100k. You put down a £10k deposit, and take out a mortgage for £90k. If you sell it tomorrow, hopefully you'll get £100k - enough to repay your £90k mortgage. It's very unusual these days to get a 100% mortgage.


And, in the above scenario, after 1 year you'll owe even less than £90k on your mortgage as you'll have made 12 payments to it ( assuming a standard repayment-type mortgage, rather than an endowment-type where you only repay the interest and no capital ).

fewcloudy

StanHowe wrote: »

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?

You're in positive equity if the house is worth more than you owe. So because you put 10% of your own money in as a deposit you almost certainly would owe less than house cost you.
But house prices fall sometimes, plus there is a cost involved in buying and selling houses such as various fees, solicitor etc.
Your mortgage rate at 3.6% seems a bit high too, is it fixed for a long time? Was there a fee for that too? Maybe there would be a penalty fee to pay if you had to change or stop the mortgage.
So it's not quite as simple as saying you owe less than the house cost you therefore you are already in positive equity.
fc

StanHowe

Ebe_Scrooge wrote: »

You'll get a statement each year showing Opening Balance, Payments Made, and Closing Balance. The Closing Balance is what you currently owe ( well, what you owed at the time the statement was produced ).


If/when you do sell ( or if you win the lottery and want to pay it off ), you can just phone them up and ask for a redemption figure - that's the amount you would need to pay today to clear it in full. In practice, when you sell a house the solicitor normally deals with all this - the money received from the sale goes into the solicitor's account, he pays off the mortgage, and returns any surplus to you ( assuming the house sold for more than the outstanding mortgage amount ).

Good to know, thank you.

Ebe_Scrooge wrote: »

Yep, you should be. Taking some made-up figures ... let's say you buy a house today for £100k. You put down a £10k deposit, and take out a mortgage for £90k. If you sell it tomorrow, hopefully you'll get £100k - enough to repay your £90k mortgage. It's very unusual these days to get a 100% mortgage.


And, in the above scenario, after 1 year you'll owe even less than £90k on your mortgage as you'll have made 12 payments to it ( assuming a standard repayment-type mortgage, rather than an endowment-type where you only repay the interest and no capital ).

I dont know why, but I always thought you were in negative equity based on interest owed and until it was paid, hence my question in the thread. I guess not, thanks.

fewcloudy wrote: »

You're in positive equity if the house is worth more than you owe. So because you put 10% of your own money in as a deposit you almost certainly would owe less than house cost you.
But house prices fall sometimes, plus there is a cost involved in buying and selling houses such as various fees, solicitor etc.
Your mortgage rate at 3.6% seems a bit high too, is it fixed for a long time? Was there a fee for that too? Maybe there would be a penalty fee to pay if you had to change or stop the mortgage.[/B]
So it's not quite as simple as saying you owe less than the house cost you therefore you are already in positive equity.
fc

Its 2.49 fixed for 2 years then 3.6% however I wanted to base it on worst case scenario at this moment in time.

From this 1 thread my understanding of mortgages has totally changed and I thought it would be this burden that you had to pay off for XX years before you got into positive equity but I guess not.

P.S I am at AIP at the moment so geeking up on my understanding of everything.

Really appreciate everyone's input, big thumbs up!

:T

Brighty

The 'total amount paid' figure they give you is a bit of a pointless nonsense figure to be honest, as it assumes after your fixed rate ends, you'll sit happily on their standard variable rate for the next 23years and that it will never change (which they do, hence standard VARIABLE rate). When your 2 year fix ends,m you'll be looking to remortgage or take a new deal with the same provider.

clairebeth

Am I right in thinking that you thought they added all the interest up and added it to your mortgage at the start? So you would have been sitting there with a lump sum of £240000 to pay off? No, you borrow the £150000 and interest gets charged either daily or monthly to that and you pay your monthly payment which chips away at it. At the start it will be a case of, for example, paying £800 a month and £500 of that is interest and £300 comes off the principal, so now you're sitting at a balance of £149700 and you're now paying a tiny bit less interest, so, very slowly, your £800 a month becomes more repayment and less interest every month. It's that interest payment, paid each month over 25 years, that they add up to say 'the total amount will be £240,000'. But your balance will be the amount you borrowed which will slowly decrease over time. If you want to reduce the interest you pay, overpay, even by £20 a month, whatever you can afford. Play around with the calculators, it's really interesting to see the effect that overpayment can have on interest and term.

dimbo61

It is always Good to carefully read the paperwork before signing anything.
Now a mortgage is

" Mortgage. "Word nerds will notice an eerie root word in 'mortgage' — 'mort,' or 'death,'" Weller writes. "The term comes from Old French, and Latin before that, to literally mean 'death pledge.'" That may seem a little severe. After all, the home you've bought is somewhere you're going to live "

So you are borrowing £150,000 to buy this property But if you take 25 years to repay the mortgage you will pay £150,000 Capital and £90,000 in Interest so if possible overpay every month

StanHowe

clairebeth wrote: »

Am I right in thinking that you thought they added all the interest up and added it to your mortgage at the start? So you would have been sitting there with a lump sum of £240000 to pay off? No, you borrow the £150000 and interest gets charged either daily or monthly to that and you pay your monthly payment which chips away at it. At the start it will be a case of, for example, paying £800 a month and £500 of that is interest and £300 comes off the principal, so now you're sitting at a balance of £149700 and you're now paying a tiny bit less interest, so, very slowly, your £800 a month becomes more repayment and less interest every month. It's that interest payment, paid each month over 25 years, that they add up to say 'the total amount will be £240,000'. But your balance will be the amount you borrowed which will slowly decrease over time. If you want to reduce the interest you pay, overpay, even by £20 a month, whatever you can afford. Play around with the calculators, it's really interesting to see the effect that overpayment can have on interest and term.

If I could have worded my query again this is how I would have done it. Yes, this was my initial understanding of how mortgages worked and its a relief it isnt actually how its done. Over paying is certainly something I would want to do.

dimbo61 wrote: »

It is always Good to carefully read the paperwork before signing anything.
Now a mortgage is

" Mortgage. "Word nerds will notice an eerie root word in 'mortgage' — 'mort,' or 'death,'" Weller writes. "The term comes from Old French, and Latin before that, to literally mean 'death pledge.'" That may seem a little severe. After all, the home you've bought is somewhere you're going to live "

So you are borrowing £150,000 to buy this property But if you take 25 years to repay the mortgage you will pay £150,000 Capital and £90,000 in Interest so if possible overpay every month

Thanks for this inspiring quote for a Monday morning :j