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Mortgage-is the interest all front loaded?

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  • 05-08-2013 1:16am
    #1
    tea and coffee
    Registered Users Posts: 1,835 ✭✭✭


    Or does it depend on the bank/mortgage? Just your regular building soc common-or-garden variable..
    Wondering if the interest is all or mainly front loaded. OH insists it is and therefore no saving in paying it off early at this stage after ten + years other than the satisfaction of getting it off our backs sooner. But I thought it was lil bit of both over the term of the whole mortgage.
    Who's right?


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    #2
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    tea and coffee wrote: »
    Or does it depend on the bank/mortgage? Just your regular building soc common-or-garden variable..
    Wondering if the interest is all or mainly front loaded. OH insists it is and therefore no saving in paying it off early at this stage after ten + years other than the satisfaction of getting it off our backs sooner. But I thought it was lil bit of both over the term of the whole mortgage.
    Who's right?

    To the best of my knowledge interest is calculated on the balance, and either done daily, weekly, monthly or in some cases quarterly. Unless the bank have a penalty clause it is always a benifit to pay extra if you have it the savings can be huge.

    "For example, if you have 20 years left on a €200,000 mortgage with an APR of 4%, by paying an extra €100 each month, you would save over €11,000 in interest and reduce your mortgage term by over 2 years."

    http://www.nca.ie/nca/extra-mortgage-payments


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    #3
    3DataModem
    Registered Users Posts: 3,997 ✭✭✭3DataModem


    tea and coffee wrote: »
    Or does it depend on the bank/mortgage? Just your regular building soc common-or-garden variable..
    Wondering if the interest is all or mainly front loaded. OH insists it is and therefore no saving in paying it off early at this stage after ten + years other than the satisfaction of getting it off our backs sooner. But I thought it was lil bit of both over the term of the whole mortgage.
    Who's right?

    Every month you pay the interest on the balance, plus a portion toward capital. In the early months its mainly interest.... It's SUPER valuable to pay off early... if interest rate is say 4% then paying 1 euro extra now is like taking 2.20 off the end in 20 years.,

    Yes.., So if you've a 4% rate and 20 years left, paying an extra 50% this year knocks a whole year off the end.


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    #4
    tea and coffee
    Registered Users Posts: 1,835 ✭✭✭tea and coffee


    Thanks. :-)
    See, this is where I am obviously a moron. If the early days are mostly interest, and only paying a small bit of the capital, then is that not like front loading the interest then? :confused: (i.e OH is correct, broadly speaking)

    Forgetting not that I am hoping he isn't ;):D


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    #5
    joebloggs32
    Registered Users Posts: 1,611 ✭✭✭joebloggs32


    tea and coffee wrote: »
    Thanks. :-)
    See, this is where I am obviously a moron. If the early days are mostly interest, and only paying a small bit of the capital, then is that not like front loading the interest then? :confused: (i.e OH is correct, broadly speaking)

    Forgetting not that I am hoping he isn't ;):D

    The simplest way of looking at it is the more you put into it now, the less you will pay in the long run, and thus you will shorten the length of time you will be paying a mortgage.
    However, if you have a very competitive tracker rate, you would be better served putting any spare cash into a high yielding savings account and letting compound interest get to work on it. Over time the accumulated savings would return more to you, than paying off a cheap tracker.


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    #6
    Pro Hoc Vice
    Closed Accounts Posts: 6,087 ✭✭✭Pro Hoc Vice


    joebloggs32 wrote: »
    The simplest way of looking at it is the more you put into it now, the less you will pay in the long run, and thus you will shorten the length of time you will be paying a mortgage.
    However, if you have a very competitive tracker rate, you would be better served putting any spare cash into a high yielding savings account and letting compound interest get to work on it. Over time the accumulated savings would return more to you, than paying off a cheap tracker.

    Very true.


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    #7
    nlgbbbblth
    Closed Accounts Posts: 5,668 ✭✭✭nlgbbbblth


    Check your mortgage statement. You should see credits (which represent the monthly repayments) and debits (which are the interest being charged). So no - not front loaded.


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    #8
    phormium
    Registered Users Posts: 3,339 ✭✭✭phormium


    It's not front loaded as such, it's simply that the interest is more in the early years as the balance is at it's largest, as the balance goes down so does the interest. It's practically always in your best interest to clear it earlier, the less time you have it the less interest you pay.


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