Mortgage Illustration

Mrframed

Hi everyone,

Just wondering if someone could enlighten me about loans figures and how's that work?

On the mortgage illustration is stated that for every £1 I must repay £1.95, where interest rate on the loan is fixed 4.8%, variable 6.7% afterwards. 
The total amount to repay is almost double.

Explain please, how the loans work and how much I actually end up paying? It's £170k loan over 25y.

Many thanks

jonnydeppiwish!

Search for it or ask on the mortgage thread.

lika_86

Mrframed said:

Hi everyone,

Just wondering if someone could enlighten me about loans figures and how's that work?

On the mortgage illustration is stated that for every £1 I must repay £1.95, where interest rate on the loan is fixed 4.8%, variable 6.7% afterwards. 
The total amount to repay is almost double.

Explain please, how the loans work and how much I actually end up paying? It's £170k loan over 25y.

Many thanks

Nobody can tell you how much you will actually end up paying, because that isn't fixed right now other than your initial period. After that if you move to the variable rate then this will vary based on the BOE interest rate. Most people though remortgage to another fixed rate (what that might be is hard to say right now). You could also make overpayments, which affect the total amount you will repay.

Sapindus

Because you pay interest every year based on how much is still left to pay off.  If you borrow a pound on ten per cent APR, you'll owe 10p in interest after the first year.  You'll pay the lender that interest and some of the original £1, but then you'll have to pay interest again for the next year on the remaining amount.

There is a formula here: https://www.wikihow.com/Find-the-Total-Amount-Paid-in-an-Interest-Rate-Equation#:~:text=To find the total amount paid at the end of,(1 + i)^N

ArbitraryRandom

There are some good calculators on MSE that let you see the impact of changing interest rates and overpayments. No one can give you an exact figure, but these might give you an idea of what to expect. 

https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

propertyrental

Some general principles to minimise the cost of the loan:

* the longer the loan period (20 years? 25? 30?) the more the loan will cost overall (but the lower the monthly periods over that time)
* the lower the interest rate at each point in time, the lower the overall payment
* the more 'overpayments' you make each month, or year, the lower the overall payments

kingstreet

The variable rate is assumed to remain constant after the fix, so any figure based on that is likely to be inaccurate and best ignored.