Mortgage Confusion

A thirty year mortgage at 5% would incur interest of over 300k. Most of each monthly payment goes towards the interest.

I'm just guessing (not all building societies do things in the same way) but if you settle up after 12 months and before 24 months, the amount to be repaid should be 110,229 (including monthly payments). Most building societies would expect another year's interest if you repaid them in, for example, month 25.

If you're interested, the calculation I've done is 100000 * 1.0499 * 1.0499 = 110229.

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Yep. Why should that surprise you? How much rent would you expect to be paying over the course of 300 months if you were not buying?

If you wanted to move in 2 years time, why would you buy a house now?

You pay the interest as you go along, and possibly a wee bit of capital too. When you move, you pay back the balance owed. Usually this comes from the sale proceeds.

eddie c said

You would pay but 100,000 minus capital repaid up to the point of redemption, plus any early redemption penalty applicable to that mortgage.

The terms and conditions of the mortgage will say what, if any, redemption penalty will be payable.

Last year the Halifax for example were offering a tracker mortgage, with a goodly discount for the first 2 years, without redemption penalty, while the A&L were offering a mortgage with very similar rates but required an additional 6 months interest to be paid if the mortgage was replayed in the first 5 years.

You will have paid the interest as you go along. If you are on a repayment basis, you will also have repaid some capital, but not if you are on interest only.

If you remortgage, the new lender will redeem your mortgage with the old lender, and take it on themselves.

Blimey. Now that's mind boggling...

Thanks - I kind of get what you are saying, but if for the 2 years fixed at

4.99% the repayment mortgage amount is 590.68, then wouldn't (590.68*24 payments)+100 000 = 114 176.32 (not including early payment penalties) be payable? I'm now confused about the 110,229 _including monthly payments_ part of what you said.

Ultimately, is it the case that if for example say 190 of the 590.68 per month actually paid the capital part of the mortgage amount off, then at the end of the 24th month, would I owe something like 95 440 (100k - (190*24))?

Thanks - I get it now its been put like that.

In message , DP writes

Thats rubbish. If the loan were a capital & repayment mortgage the interest (depending on the lenders method which you acknowledge below) would be of the scale of £95k. If it were an 'interest only' mortgage then the total interest would be about £150k.

I know of no B/Soc that would do it this way, these days.

The payments made by the borrower would reduce the capital at the end of the first year though.

Yes. With a repayment mortgage the amount owed goes down every year. With other mortgages the amount owed stays the same each year and you pay something for interest and something else into a separate saving scheme that (hopefully) will pay off the loan at the end of the term.

It's also wrong, as has already been pointed out.

It's evident from the figures you quote that this deal is actually one of 4.99% per year:

£100k * 0.0499 / (1 - 1.0499^-25) = 12 * £590.678

and not of a twelfth of that per month, which would give a slightly smaller monthly payment:

£100k * 0.0041583 / (1 - 1.0041583^-300) = £584.008

Basically, therefore, the idea is that you are deemed to borrow £100k for the whole of the 1st year, at the end of which therefore you will be charged £4990 interest. During the 1st year you've saved up payments of £590.68*12, which is £7088.16, so after they pocket the £4990 interest, there is £2098.16 left to reduce the balance.

Accordingly, you will now be borrowing £97901.84 for the whole of the

2nd year, and therefore be charged £4885.30 interest at the end of it. Again, you'll have saved up £7088.16, and so your debt will reduce by £2202.86 to £95698.98.

This last figure is what you would then have to pay if you were redeeming the mortgage at that point in time. The total you would have paid then would be 2*£7088.16 + £95698.98 = £109875.30.

Yes, something like. But not exactly. Because you owe less in year

2 than in year 1, less of your fixed payment goes on interest in the 2nd year, so you're paying off more capital in year 2 than in year 1.

The monthly equivalent of the capital part is not £190, it's about £175 in year 1. In year 2 it's about £184. So the rough calc goes

12*(£175+£184) = £4308, and £100k minus that is £95692, which is near enough to my more exact £95699.

This was an excellent and interesting answer to my question, thankyou.