"Outstanding mortgage" and negative equity.

gboy25

I'm a little bit confused about negative equity. I don't actually have  a mortgage yet but I'm a big overthinker and like to know what I'm getting myself into. My understanding with neg equity is that you end up in it if your house is worth less than your "outstanding" mortgage at that time. But when it says outstanding mortgage does that include interest? So if I have 100,000 for example left on my mortgae and the house is worth 105,000 I would have equity. But what if that means i have 100,000 on the outstanding mortgage before interest but say 120,000 with interest?  Does that mean you would then have negative equity? 
https://www.money.co.uk/mortgages/equity-calculator.htm
I was using that calculator to understand but it didn't seem to answer this question. 
Thanks 

Majoggy

It would not include the interest, it’s just if the amount owed is larger than the value of the property.

If you ever change the amount of years, or if interest rates change, then the interest will change. For instance, after 3 years my mortgage will charge roughly 4 percent interest. But it will never get to that point because I will have remortgaged by then. So trying to work out the interest is kind of pointless.

Emmia

As long as you can afford the repayments on a mortgage, and are not needing to sell the property, negative equity isn't necessarily something to overly worry about in the short term - prices and propety values generally rise over time, wiping out the discrepancy.

However, selling, when your outstanding mortgage is higher than the money you receive from the sale of the property, crystallises the loss and even if you sell you're still legally liable to repay the difference, whether that is £1 or £1million.

MovingForwards

Interest doesn't work how I think you think it works.

Mortgage interest is calculated on a daily basis and added to the mortgage payment, along with a bit towards the capital.

If you had £100k mortgage, 2% interest, 20 year term, your monthly payment would be £505.88 (ish, based on a mortgage calculator).

Of that £505.88 = £342.33 is for capital repayment and £163.55 is for interest payment each month.

If you won the lottery after a month of having the mortgage you would pay £100k back, plus however many days there were up to the date you were paying and from your last payment, plus any early repayment charges and a mortgage redemption fee.

As you are always paying some capital off each month, the loan goes down.
Over 5 years, below is an example of how it reduces:

Year	outstanding mortgage
1	£95,892
2	£91,701
3	£87,425
4	£83,063
5	£78,613

gboy25

MovingForwards said:

Interest doesn't work how I think you think it works.

Mortgage interest is calculated on a daily basis and added to the mortgage payment, along with a bit towards the capital.

If you had £100k mortgage, 2% interest, 20 year term, your monthly payment would be £505.88 (ish, based on a mortgage calculator).

Of that £505.88 = £342.33 is for capital repayment and £163.55 is for interest payment each month.

If you won the lottery after a month of having the mortgage you would pay £100k back, plus however many days there were up to the date you were paying and from your last payment, plus any early repayment charges and a mortgage redemption fee.

As you are always paying some capital off each month, the loan goes down.
Over 5 years, below is an example of how it reduces:

Year	outstanding mortgage
1	£95,892
2	£91,701
3	£87,425
4	£83,063
5	£78,613

 Brilliant thank you! You're right I wasn't entirely sure how the interest part works exactly but this clear it up.