Mortgage balance appears incorrect

irish bloke

Hi All,

Not sure if its the right place to pose the question, but here goes.

A 100% mortgage was taken out 10 years ago for €365,000.
Currently the balance is €287,000 and no payment has been missed in this period.
The mortgage is currently on as tracker and subject to 0.1%.

By my calculations 10 years of payments on a €365,000 mortgage should be €105,000 (not including interest), thus leaving a balance of €260,000.
That's €27,000 short of the €287,000 currently owed.

Can someone please advise have I got this right or are there other factors at play here?

Many thanks....

seamus

It's hard to say when you haven't included the amount of interest paid. And of course, interest rates go up and down, so the interest you paid at the start of the mortgage is much higher than what you're paying now.

If the total you have repaid over the ten years is €105,000, then it would seem that €27,000 of that 105,000 was interest.

Grumpypants

Looks like interest to me. Your 0.1 tracker is prob a 1.1% over ECB rate.

irish bloke

Correct me if i am wrong, but its a fixed 35 year term mortgage - i.e. if the required amount every month for 35 years is paid, then the house is paid for.

There was a variable rate for the first few years and then this went to the tracker.
The monthly mortgage amount varied based on the amount of interest for that month and was always paid in full.

To me then that means that 10 years have been paid in full (irrespective of the interest fluctuation) and this was paid every month based on the current rate.

antoinolachtnai

Reckoning that in my head the bank’s figure is about right. It’s an average interest rate of around .85 percent or a bit more per year. (Average balance 325k, average interest of 2700 per year, 2700/325k. That is a very rough calculation. )

You can work it out for yourself in a spreadsheet. Or ask for a full statement of payments to date.

It is pretty cheap money so you are doing ok. You are getting to live in your house for about 225 euros a month. You have also effectively saved 78,000 over the period (though no doubt you have made a loss over the period on your capital.) you may also have gotten some tax allowances.

antoinolachtnai

In reply to your last comment, the interest proportion will fall a lot towards the end of the mortgage as the principle reduces.

If you are concerned about it you should certainly put some time into checking the calculation.

It might help to try calculating it on this:

http://amortization-calc.com

You aren't allocating the payments or interest correctly.

At the start you are paying more interest (because the amount you owe is larger) and less off the capital.

As the capital is paid down the relative amount of interest in your monthly repayment goes down and the capital repayment goes up.

https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator
Something like this will show you the reducing balance- (ignore the pound symbol)

irish bloke

Thanks for the replies.

Mortgage is on 0.1% tracker now which is 1.1% AFAIK (payments at 1.1% interest match exactly with what is being paid right now)

The below image taken from the calculator pg633 sent on (thanks) states after 10 years at 1.1% the balance should be €274,672 - still 13k out.

I thought (probably incorrectly) that you would incur zero future interest if you wish to pay the balance off in full at any point in the term.

seamus

irish bloke wrote: »

To me then that means that 10 years have been paid in full (irrespective of the interest fluctuation) and this was paid every month based on the current rate.

I think I see where you're going wrong. You're assuming that the principal is repaid in an equal chunk every month - i.e. that every month you repay 1/420th of the original borrowed amount.

That's not how it works. Your repayment is a calculation based on the current interest rate, the amount of the loan outstanding and the term left. Interest on a loan is always repaid first. So the bank calculates the interest repayable on the loan every month, and then that is the first thing covered by your repayment. Whatever is left is then thrown against the principal.

For example, if the interest in month 1 was 2%, then your repayment is about €1,200. The interest which accumulated in that month was about €600, so that gets paid first, and then the other €600 is put against the loan.
You can see that if you put €600 a month against the principal for the next 35 years, the loan won't get paid off. But if you continue to pay €1,200 a month, then the interest will reduce over time, while the amount put against the loan goes up.

But this also means that the loan doesn't get paid off evenly. You end up repaying most of the principal in the second half of the term.

Yourmama

irish bloke wrote:

There was a variable rate for the first few years and then this went to the tracker. The monthly mortgage amount varied based on the amount of interest for that month and was always paid in full.

What was the variable rate at?

seamus

irish bloke wrote: »

Thanks for the replies.

Mortgage is on 0.1% tracker now which is 1.1% AFAIK (payments at 1.1% interest match exactly with what is being paid right now)

The below image taken from the calculator pg633 sent on (thanks) states after 10 years at 1.1% the balance should be €274,672 - still 13k out.

Sure, but you haven't been paying 1.1% for the last ten years. When you took out the loan your interest rate was probably around 4.5%

I thought (probably incorrectly) that you would incur zero future interest if you wish to pay the balance off in full at any point in the term.

No, that's correct. If you have a fixed interest rate, there's usually a break penalty, but in general there's no future interest repayable.

antoinolachtnai

irish bloke wrote: »

The below image taken from the calculator pg633 sent on (thanks) states after 10 years at 1.1% the balance should be €274,672 - still 13k out

That is one year’s payments roughly speaking. Are you comparing a figure for beginning of year 10 to a figure for end of year ten maybe?

Raggaroo

Your original €365,000 was at year 0 so after 10 years are you at year 9 ??

irish bloke

Folks,

Cheers for the replies..

I see where I was miscalculating now. i.e Interest gets paid first then principal and probably the fact that I am in year 9 as opposed to year 10, as also pointed out.

Thanks..

The link I provided is a bit simplistic - as suggested above it doesn't account for changes in interest rates over time.

It was just to show how the principal is repaid.

At the start the ECB rate was what 4 or 5%?