Monthly mortgage repayments - I'm making a balls of it

tom_tarbucket

hi

see attached file which is a screen grab from myhome.ie

it's just an example.

150,000 loan over 25 years at 5 %
the myhome website is coming back with monthly repayments of 876 euro a month.

I don't understand this figure.


my workings would be


150,000 over 25 years = 6000 a year


then add on interest.

150,000 @ 5 % = 7500 for the first year anyways.


so for first year, it would be 6000 + 7500 = 13,500

13,500 ÷ 12 months = 1125 a month.

so my figures work out at 1125 a month.
myhome figures work out at 876 a month.

bit of a difference.

where am I making the balls up ?

happywithlife

Have you allowed for mortgage interest relief?does that still exist for new mortgages? Not sure sorry

AlmightyCushion

In your example the loan repayments would reduce every year as long as the interest rate stays the same. In the real work, your loan repayments stay the same. Your first years payments will mostly be interest and you'll pay a small amount off the capital. Your last year's payments will be mostly capital with a small amount of interest.

tom_tarbucket

AlmightyCushion wrote: »

In your example the loan repayments would reduce every year as long as the interest rate stays the same. In the real work, your loan repayments stay the same. Your first years payments will mostly be interest and you'll pay a small amount off the capital. Your last year's payments will be mostly capital with a small amount of interest.

I am still none the wiser.

which example are you talking of -- the my home one or my personal calculations ?

AlmightyCushion

tom_tarbucket wrote: »

which example are you talking of -- the my home one or my personal calculations ?

Your personal calculations.

Pacing Mule

You have to bear in mind the cost over 35 years is averaged out to make one monthly repayment figure.

In year 35 paying 1125 a month would be paying well over 1,000 off the principal or 12,000 a year which is double what you have said it would need @5% interest in year 1. The 876 a month is the figure needed to pay off the entire loan over that time period. You would find that the first year nearly all of your payments will be going on interest and not much to the balance. As time goes on the balance drops meaning you are paying more of this and less interest.

tom_tarbucket

Pacing Mule wrote: »

You have to bear in mind the cost over 35 years is averaged out to make one monthly repayment figure.

In year 35 paying 1125 a month would be paying well over 1,000 off the principal or 12,000 a year which is double what you have said it would need @5% interest in year 1. The 876 a month is the figure needed to pay off the entire loan over that time period. You would find that the first year nearly all of your payments will be going on interest and not much to the balance. As time goes on the balance drops meaning you are paying more of this and less interest.

so the 876 is just the average figure then and does not necessarily mean that ill be paying 876 back every month.

assuming interest rates stay the same, will my actual monthly repayments for the first year be 1125 and then just reduce every year ?

goingnowhere

Thats not how it works, you have the impact of compound interest.

In the simplest terms @4% 150,000 over 25 years (300 repayments) is 792 euro/month


So

Monthly payment is = Principal * ((1+ (interest rate/100)/12)^number of months) *(interest rate/100)/12))/((1+ (interest rate/100)/12)^number of months - 1)

AlmightyCushion

tom_tarbucket wrote: »

so the 876 is just the average figure then and does not necessarily mean that ill be paying 876 back every month.

assuming interest rates stay the same, will my actual monthly repayments for the first year be 1125 and then just reduce every year ?

You'll pay 876 a month in the first year. If interest rates stay the same then you will pay 876 every month for the entire length of the mortgage.

Pacing Mule

tom_tarbucket wrote: »

so the 876 is just the average figure then and does not necessarily mean that ill be paying 876 back every month.

assuming interest rates stay the same, will my actual monthly repayments for the first year be 1125 and then just reduce every year ?

It would stay at 876 assuming the interest rates didn't change during the term.

You're a bit confused. Will try and explain it a bit better !

Yes your OP is correct in that to pay off 1/35th of the prinicpal in year 1 and pay the interest it would require payments of 1125.

However in year 1 of a 35 year mortgage you only pay a tiny tiny portion of the principal. You do not finish year 1 having paid off 1/35th of the principal.

In year 2 you pay a bit more, more in year 3 etc etc by the time you get to year 30+ you are paying mainly towards the principal as the interest payment is lowering each and every year.

makeorbrake

Take the hard work out of it :-)


Karl Jeacle's Mortgage Calculator

tom_tarbucket

Pacing Mule wrote: »

It would stay at 876 assuming the interest rates didn't change during the term.

You're a bit confused. Will try and explain it a bit better !

Yes your OP is correct in that to pay off 1/35th of the prinicpal in year 1 and pay the interest it would require payments of 1125.

However in year 1 of a 35 year mortgage you only pay a tiny tiny portion of the principal. You do not finish year 1 having paid off 1/35th of the principal.

In year 2 you pay a bit more, more in year 3 etc etc by the time you get to year 30+ you are paying mainly towards the principal as the interest payment is lowering each and every year.

Oh ok. I thought the monthly repayments would start at 1125 and then just reduce each year as the principal and therefore interest reduced.

But the 876 figure is the figure I will pay every month for the whole mortgage.


However. I think my figures of starting off at 1125 and reducing each year will work out at the same as paying an average of 876 a year, correct ? ( assuming interest rates stay the same etc )

joebloggs32

tom_tarbucket wrote: »

Oh ok. I thought the monthly repayments would start at 1125 and then just reduce each year as the principal and therefore interest reduced.

But the 876 figure is the figure I will pay every month for the whole mortgage.


However. I think my figures of starting off at 1125 and reducing each year will work out at the same as paying an average of 876 a year, correct ? ( assuming interest rates stay the same etc )

The way you calculated would mean starting at 1125 and ending at probably 500. No mortgage operates like that. Instead they work out what the cost of borrowing the principle plus interest would be over the term agreed and then you pay a monthly installment to cover the total. When rates move up or down they adjust accordingly the amount you need to pay.

Mrs OBumble

joebloggs32 wrote: »

The way you calculated would mean starting at 1125 and ending at probably 500. No mortgage available in the Irish market operates like that. Instead they work out what the cost of borrowing the principle plus interest would be over the term agreed and then you pay a monthly installment to cover the total. When rates move up or down they adjust accordingly the amount you need to pay.

fyi, there are a range of mortgage types that simply are not offered in the Irish market, which work quite differently to what you have described.

The one I'm most familiar with is a revolving credit mortgage. This operates like a giant overdraft, with the allowable "overdraft" level slowly reducing to zero over the life of the mortgage, no compulsory payment at all each month provided this overdraft is not over-drawn, and interest being charged to the account monthly but calculated based on the actual daily balance.

There are others too, I'm sure.

ted1

tom_tarbucket wrote: »

Oh ok. I thought the monthly repayments would start at 1125 and then just reduce each year as the principal and therefore interest reduced.

But the 876 figure is the figure I will pay every month for the whole mortgage.


However. I think my figures of starting off at 1125 and reducing each year will work out at the same as paying an average of 876 a year, correct ? ( assuming interest rates stay the same etc )

The first few years your just paying off off interest, if you over pay you start paying off capital and thus reduce the interests d this pay less in the long term.
150,000*1.05=157500. If you pay off 7501 then in year two you owe 149,999*1.05= 157,498 where as if you paid 10k you would owe 147,500*1.05=154,875and each year the saving would be beneficial

makeorbrake

ted1 wrote: »

The first few years your just paying off off interest, if you over pay you start paying off capital and thus reduce the interests d this pay less in the long term.

Use the calculator I linked to op and you will see this.

tom_tarbucket

joebloggs32 wrote: »

The way you calculated would mean starting at 1125 and ending at probably 500. No mortgage operates like that. Instead they work out what the cost of borrowing the principle plus interest would be over the term agreed and then you pay a monthly installment to cover the total. When rates move up or down they adjust accordingly the amount you need to pay.

right. I know the way it works now.

I'm just asking when all is said and done ........... do both ways end up paying off the same amount of money.

tom_tarbucket

makeorbrake wrote: »

Use the calculator I linked to op and you will see this.

sound for that. very handy.

AlmightyCushion

tom_tarbucket wrote: »

right. I know the way it works now.

I'm just asking when all is said and done ........... do both ways end up paying off the same amount of money.

No. The way you first did it where you paid the same amount off the capital every month and the amount of interest paid decreases will work out cheaper because at the beginning you pay off way more towards the capital which will save you a lot of interest.

braddun

that's about right


you pay about 263,000 over the length of the loan


113,000 interest


don't forget other costs

tom_tarbucket

braddun wrote: »

that's about right


you pay about 263,000 over the length of the loan


113,000 interest


don't forget other costs

what is about right ?

braddun

tom_tarbucket wrote: »

what is about right ?

876 euros month

tom_tarbucket

braddun wrote: »

876 euros month

Thanks. what other costs are you talking of ?

solicitors, estate agents, valuers, surveyors etc ?

MouseTail

tom_tarbucket wrote: »

Thanks. what other costs are you talking of ?

solicitors, estate agents, valuers, surveyors etc ?

May be referring to costs of home ownership, property tax, life insurance, property insurance, maintenance etc.

Eldarion

It's this same principle that makes significantly more beneficial to try to reduce the principle earlier on in the mortgage rather than later.

Mrs OBumble

Eldarion wrote: »

It's this same principle that makes significantly more beneficial to try to reduce the principle earlier on in the mortgage rather than later.

Indeed. When I hear people saying that a 35 year term is normal, I shudder at the amount of interest they're paying, vs if i was a shorter term.

AlmightyCushion

Mrs OBumble wrote: »

Indeed. When I hear people saying that a 35 year term is normal, I shudder at the amount of interest they're paying, vs if i was a shorter term.

It's probably worth taking a 35 year mortgage even if you can comfortably afford the monthly repayments of the 25 year. Get the 35 year mortgage, pay what the monthly mortgage amount of the 25 year is. If nothing changes then you pay it off in 25 years anyway. If shít hits the fan, and you get really tight for money, you can pay the monthly cost of the 35 year instead for a while. Best of both worlds really. Obviously doesn't work if you fix your rate.