Rate of Capital Repayment in Capital and Interest Mortgages

Fashcroft

Unfortunately Halifax are un-able to tell me if all Capital and Interest Mortgages take the same percentage of Capital off per year for a given constant number of months over which the Mortgage is paid off. Is this a constant across the industry, or are lenders entitled to split what they remove from the outstanding Capital debt such that they take as little off the capital debt as they feel like at the start? 

dunstonh

Unfortunately Halifax are un-able to tell me if all Capital and Interest Mortgages take the same percentage of Capital off per year for a given constant number of months over which the Mortgage is paid off.

No.     That only happens on front loaded interest loans.

Mortgages charge interest on the daily balance.   So, the reduction curves.  Very little in the early years too.

. Is this a constant across the industry

Front loading is unheard of with mainstream 1st charge mortgages as you cannot front load with variable interest rates.

or are lenders entitled to split what they remove from the outstanding Capital debt such that they take as little off the capital debt as they feel like at the start? 

What other way do you think there is of doing it with variable interest rates?

ACG

Typically you pay more interest in the earlier years.

Have a look for an amortizization calculator. Some of them show how much interest and how much capital is paid broken down month by month. 

Annisele

I think the easiest way to understand this is to think about what happens with unrealisticly small (or big) numbers.

There's an amortisation calcuator on this site, at https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/.

If you start by pretending the debt is £100,000 over a ten year term, then play with the interest rate, you can see:

• With an interest rate of 0% (you have to enter 0.001 because the site won't let you have zero), your mortgage debt over time will go down in a straight line. You'll repay exactly £10k of capital each and every year, or 10% of the original balance, because there is no interest - meaning the capital repayments every year are identical.
  
• With an interest rate of 5% (slightly more realistic), the graph showing your mortgage balance over time will have a curve to it. You will make capital repayments of about 8% of the original balance in the first year, and more like 12% in the final year.
• With an interest rate of 20% (hopefully unrealistic in the other direction), the graph of the mortgage balance will be much much curvier. In the first year you'll repay about 3.5% of your original mortgage balance, and in the last year you'll repay nearly 21%.

The higher the rate, the curvier the graph will be - and the less capital you'll repay in the early years.

Fashcroft

Many thanks to everyone for these explanations.