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Mortgage interest question

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  • 03-11-2010 11:12am
    #1
    Bill2673
    Closed Accounts Posts: 749 ✭✭✭


    This is a complicated question and I'd appreciate any informed answers.

    I have five years completed on a 25 year mortgage.

    I have a tracker rate currently at 1.8%. I reckon my average interest in the five year period has been between 3% and 3.5%.

    The bank tells me that of the payments I have made thus far, only 46% of the amount has been for capital reduction, while 54% has been interest.

    Does this make sense? I don't see how interest payments can be so high when i'm on a low tracker. The interest payments I have made already represent 17% of the loan I took out. And this doesn't even adjust for mortgage interest relief.


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    #2
    Dr. Dodger
    Registered Users Posts: 381 ✭✭Dr. Dodger


    I'm open to correction but I'm pretty sure the majority of any mortgage payments at the start are mostly interest payments.

    As the years go by the % of interest/capital payments decrease/increase so while you are paying very little off the capital amount right now, this will change as the years go by. A mortgage is not the same as just paying off a loan where interest is charged on a reducing balance basis.


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    #3
    chris85
    Registered Users Posts: 4,502 ✭✭✭chris85


    Dr. Dodger wrote: »
    I'm open to correction but I'm pretty sure the majority of any mortgage payments at the start are mostly interest payments.

    As the years go by the % of interest/capital payments decrease/increase so while you are paying very little off the capital amount right now, this will change as the years go by. A mortgage is not the same as just paying off a loan where interest is charged on a reducing balance basis.

    Yeah the interest works out being front loaded.

    At the start the payments are mostly paying interest for the first few years and maybe 5-10% off the principal. As the principal balance goes down so does the interest charged and your payments against the principal go up and it has a knock on effect. So basically its the opposite at the end of the loan schedule

    Its called mortgage amortisation.

    Use the calculator in the link below, put in the details and you will get a rough idea of it. Will be hard to be percise with any calculator as you are on a tracker which fluctuate but you get the idea.


    http://www.mortgages-loans-uk.co.uk/information/mortgage-amortisation-calculator.htm


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