Mortgage repayments

If you are on a standard repayment mortgage it is structured so the payments in theory stay the same for the full term. This means that to start you pay much more interest than capital, and towards the end you pay much more capital than interest (as the overall sum owed decreases).

Unless you have been badly mugged it is normal – you pay a much higher proportion of interest in the early part of the loan.

In practice it is likely you will remortgage more than once and hopefully repay early – but the initial payments are based on the same payment every month for the full term of the mortgage/

If you use a mortgage broker the position can even be worse than that outlined as they take their pound of flesh very early on.

The really bad situation comes for those who have an interest only mortgage as they can easily finish with nothing just as they are retiring. They take a huge gamble that the value of the property will rise sufficiently to pay off what they owe and leave enough to downsize. Sadly, those who took that gamble 30 years ago have been very badly burned and may even owe money as their mortgage matures.

By remortgage do you mean ‘take a new mortgage deal’?  I’ve just signed up to a 10 year fixed rate because my previous mortgage has ended and I would be put onto the standard, higher rate.

I don’t have a new mortgage but just a new fixed term agreement on how I will pay it so the rates are lower than the standard rates.  Everything else stays the same.

If so then you will probably pay less money each month but you are just paying less interest and not affecting the repayment of the loan.

You could TRY a mortgage calculator and see what that shows. Like Dave & Richard I paid off my mortgage as soon as I had built up enough loot during my Middle East sojourns so I’m afraid I cannot test it for you.

It’s a complicated formula, but this is a good DIY guide using Excel http://www.wikihow.com/Calculate-Mortgage-Payments

Note the bit at the end, the amortization schedule. EDIT – that’s the bit will tell you the monthly split of interest / capital.

Think of it like the opposite of compound interest. I’m probably going to explain this technically incorrectly, but it works for me ?

At the start your loan is say £50k and you pay the interest on £50k plus a bit to reduce the loan. So the next month you owe the interest on say £49.9k so the interest payment is less. If you keep the payment the same a bit more goes into reducing the loan again. So say the next month you now owe say £49.75k, so that’s less interest and more off the loan. And so it goes on until the situation is reversed and more of your payment goes to reducing the loan than paying the interest.

When I paid mine off I had to get a quote for that day and that day only. God knows how they worked it out as when the endowments matured I paid them in but they didn’t cover the interest they were meant to (which we planned for, but underestimated, by having a larger repayment portion than required). I kept the monthly payment the same when the interest rates dropped to further compensate for the endowments. We were on track to finish owing little to nothing, but redundancy sorted that out with 5 years to go.

Endowment mortgages are interest only with the capital paid off at the end by an endowment policy.

The scam (which we got heavily bitten by) was that the projected illustrations of how the policy would perform were deliberately flawed. Most of the first two years payments actually went to pay the commission of the agents who, as you can imagine, loved them. All that money up front.

There was no mention of a repayment mortgage at the time, that was old fashioned. Why would you do that when you could not only repay the capital but have a similar sum again to spend as you wished? Of course it was all a total lie and cost me over £20k.

While I did have an endowment policy it was not tied to the mortgage and I kept the mortgage as a repayment style one. I agree with Dave’s assessment of how they work, one extra point to add might be relating to when the interest is worked out. Some do it monthly, some do it at other intervals or when the rate changes. This can be important as if you make an excess payment, it could count very quickly and affect future interest, in other cases it could be sometime before the figures are re-calculated. Things may have been cleaned up over the years but at one time it was only recalculated every year by some lenders. I have been out of that market since 1980. Though I took a passing interest when by daughter bought her house back in 2010 and my endowment part funded that venture She lead with that job and it has been all her own business.
Another point on which I agree with Dave is that the endowment projections were straight out of the la-la land book of nursery tales. It did not really affect me but it produced about 40% to 60% of what I was told to expect.I know they left some people with serious issues. Happily my redundancy money went straight into the pension and that was one of my (few) good moves.

Edits were to remove odd type setting instructions that appeared.