Calculate mortgage repayments

Brego888

How exactly is a monthly mortgage repayment calculated? How do they come to that figure? How much of the repayment is interest and how much is equity on the property?

Sorry if these questions are really basic but I just can't get my head around how it's worked out. I've put my details in to various different calculators online and for a €200,000 mortgage my monthly repayments at current interest rates come out at around the €1000 mark but they don't indicate how they came to that figure. I know changes in interest rates, the length of mortgage etc will affect the repayment. But again the issue of how they arrive at a certain amount confuses me.

The_Conductor

You owe the principle from day 1
From day 1- you begin to repay the principle- however, you are incurring interest on the entire sum.
You decide when you want the entire mortgage cleared (a date in the future), based on your repayment capacity/how much you want to pay on a monthly basis.
At the outset- the vast bulk of the repayment is probably going to be interest- but a small amount of the principle will be repaid. As the mortgage progresses- the principle is run down slowly over time- and a larger portion of the repayments is principle- which in turn lowers the interest component, and increases the principle repayment.

On day one- the figures add up. If you change your repayments- or interest rates go up- or you change the term etc- the calculation changes- you either change the term of the mortgage, or the monthly repayments.

wench

Start from an interest only perspective.
€200,000 at 4% interest would cost you €8,000 per year. At the end of the year, you still owe the full amount, and it will keep costing the same amount of interest every year.

So to pay off the principal, you will need to pay more than that. Taking your €1,000 per month amount, the extra €4,000 will go off the principal.
So the next year, you owe €196,000, so the interest would only be €7,840, and that leaves more of the payment to go off the principal.

The amount over the interest you need to pay is determined by how long you want to take to pay it back.

(these figures are somewhat simplified, the bank does the calculations daily, so each month you pay a little less interest, and a little more principal)

jon1981

MS Excel has a loan amortization template which you can use to calculate the interest/capital repayment split for a given loan amount over a given number of years and interest rate. Quite easy to use.


p.s. it's also quite depressing to see how little the principle increases each month for a 30yr mortgage.

spockety

Feast your eyes on this tool...

http://www.drcalculator.com/mortgage/