Question
Can someone please explain mortgage repayment amounts to me?
Hi. Me and my husband are crossing swords over how much of a mortgage we can afford to have. The mortgage calculators favour his point of view, but i just can't get the maths to add up and i guess it is because my understanding of mortgage payments is completely wrong. I thought that if you got a mortgage of say £125,000 over 20 years and you had a 10% interest rate that you would effectively pay back £137,500. In this case the monthly repayment over 20 years would be around £573 which we could afford. However, the mortgage calculators say that £125000 over 20 years at 10% the monthly payment would be £1206 per month which we most certainly cannot afford. If it was £1206 per month for 20 years we would have paid back a total of £289440 on a mortgage of just £125000. I don't get it... Please can someone explain it to me? My head hurts :( Thanks
2 months ago - 4 answers
Best Answer
Chosen by Asker
The calculators are right, an amortization table will show exactly how it works. You pay the interest rate on the balance annually, If you're looking at 10% rates and 20 year terms. 1% of the total loan amount is pretty close to what the payments will be.
Source(s)
I'm a mortgage consultant
by Nash P
2 months ago
Asker's Rating: 
Other Answers
omg hun, you really need to get someone to re-calculate for you. i have a £36500.00 and have already paid back over £90000.00 in 11 years
by thelma_layton- 2 months ago
You are wrong. That is not how compound interest works. Google "loan amortization."
by jlf- 2 months ago
That 10% isn't 10% once, it is 10% per year. So in the first year of those 20 years you will pay that 12,500 in interest plus a tiny bit of the principle. In the second year you will pay almost 12,500 in interest because you owe almost as much as you did at the start of the year. Go to any loan amortization table and you can see how it works. Your husband is right on this one.
by hanora- 2 months ago
if you and your husband are young then it is odds on that you wont be staying in the same house for life.If you can get an interest only mortgage then you can pay whatever the % is at the time your mortgage was given.For example,£125k @3% would be £375 per month @ 6% £750 and so on.You would have to have a life policy to cover the total as you never pay the capital.This means that when your home is worth double what you paid for it,you can sell it,pay off the mortgage and still have £125k profit.This gives you a good deposit to put towards a new home and off you go again.Sort of like renting but with you gaining the profit. Your husband is right,you pay the % every month not annually so you do pay an enormous amount to the banks to borrow money.
by beverley1156- 2 months ago