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Capital Pay-off Query


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Hello

I'm aware the following might lead to a "Check out this imbecile"-type reaction, but here goes:

I have a 25-year Nationwide repayment mortgage for £115,000, taken out just under two years ago.

It is on a five-year fix of 4.95%.

I have just received my second annual statement, and am concerned that the capital is not reducing as quickly as I would expect.

My calculations are based on the following assumptions, and I hope someone can tell me if/where I'm going wrong:

A 25-year mortage means 300 payments (25 x 12).

I therefore assumed that each month's payments should pay off 1/300th of the £115,000 ---- £383.

However, the capital is not being reduced nearly as quickly as this.

I would have hoped that at the end of two years of payments, I'd have paid off around £9192 of capital -- (£383 x 24 payments).

However, by Nationwide's figures I will only have paid off around £5000.

Can anyone explain this to me?

Is my basic assumption that each payment pays off 1/300th of the capital wrong?

I phoned Nationwide, but we just confused each other and I decided I'd be better sending my query in writing.

-------------------------

P.S. Another of my assumptions is that my house will be "worth" less than I paid for it after the five years --- but that's another subject!!

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you pay the same amount every month for 25 years, so in the later years you pay off more and at the start your mainly paying interest. Try buildig it in excel. Put the initial morgage in one row and calculate the IO morgage you need to pay each month in each sell, add the capital repayment to get the number your currently paying add a bit more logic and calculations, drag the who thing down 25 years and you will get a nice speedsheet how much interest and repayment you will pay each month.

or use this funky website :P

http://www.freemortgageanalyzer.com/mortgage/mortgage.html

It shows why Interest only is bad, and why you should try and get a short a morgage as possible and pay it off as quickly as possible (unless you are using the spare money to invest elsewhere...)

Edited by moosetea
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yeah... try and save at the same time and get your morgage down as quickly as possible... When you come off your fixed, hopefully higher interest rates and inflation will mean your salary will be bigger and your morgage will be easier to pay. Ie your debt is eroded over time by wage inflation (if we get wage inflation). Hopefully you aready get paid more than you did 2 years ago, and your morgage is easier to pay?

Edited by moosetea
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It makes my ignorance even more inexcusable, but I had actually seen that website before!

But thanks for reminding me about it. It really does incentivise* me to start battering in with overpayments.

"Hopefully you aready get paid more than you did 2 years ago, and your morgage is easier to pay?"

Hmmm.....my employer does not have a great track record in responding to inflation. It was once the best place to work in the area, but I'm told its wages did not keep up with the inflation burst of the late 70s, and it has been behind ever since.

However, that might also explain why our jobs are as secure as one could hope, while everyone else seems to be hanging on for dear life. And we have the rare luxury of a final-salary pension scheme which is many millions in the black.......for now.

* My ultimate ambition must be to join the public-sector gravy train, and I hope that increased use of such [email protected] buzzwords will help my chances.

Edited by Confiteor
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Ok, after 24 payments @ 4.95% you would have paid off £5,089

See the attached spreadsheet for calculations. You can actually enter the figures as the months go by, even has a graph. Wow.

Enter the values in yellow, including any overpayments.

mortgage_costs.zip

mortgage_costs.zip

Edited by Jason
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