How is this possible - mortgage

[Mortgageh]

If I take out a mortgage of £200k over 35 years with an interest rate of 6%, my monthly payments would be £1250. This would mean I'm paying nearly £500k?!!

It's my first time doing something like this and I'm really confused so just wondering if anyone can explain this, thank you

Go for a shorter time frame - even set it to 30 years instead of 35 - and make regular overpayments. Even as little as £150 a month is taking 8 years off my mortgage.

Alternatively if OP couldn't reliably commit to a 25 year term she could do 35 with a £140 monthly overpayment and save almost the same amount (if she did make it every month) but with the added safety of being able to turn the overpayment off if she needed.

It's in there from about year 7 and is revisited about once a year (similar to the reproduction topic). The trouble is people don't listen or take on board how important it is, then real kids come out of school claiming no one ever told them things we told them until blue in the face.

God I wasn't looking for judgement.

As I said it's my first time.

Or take the longer term, overpay by £150 a month and then you have the flex for months where times are tough. If you take the higher repayments you're stuffed in a tight month.

If it's any comfort OP, with a long mortgage term such as 35 years you will find that inflation eats away at the principal over time. 200k is quite a lot in today's money, but not so much in a few decades' time. Obviously the interest rate will move up and down. But if you can keep your income paced with inflation the burden of the underlying debt will lessen.

At least that's what I'm counting on 😅

Cross posted exactly the same thing!

That might make you feel better, but renters are paying the equivalent per month if not more over their lifetime and have no appreciating asset at the end.

You won't be paying compound interest on a mortgage. Compound interest is where you are paying interest on interest because you repayment is less than the cost of the loan. So the unpaid interest becomes part of the loan.

If you were paying compound interest on a mortgage it would never be paid off. That's not how a mortgage works.

6pc on £200k is £12k interest a year so that's a grand a month so if your repayment is £1250 a month, your only pay back £ 250 a month on a 200k loan, so in the early days your paying off the loan very slowly which is why it takes 35 years.

Overpay when you're in a position to do so. You can save tens of thousands in interest.

But by your example, you would pay £1250 rent per month for 35 years and have NOTHING at the end of it. OP will pay that (although realistically over the course of 35 years the interest rate is going to change and likely be lower at times), and have a house at the end of it.

It just doesn't make sense to me how the interest can be 6% but I'd be paying over 100% It’s 6% for each year. And 35 x 6% = 210%

Using these figures, I can either pay £1250 a month for 35 years (say from age 30) then own the house at 65 and not pay any more or I can pay rent of a similar amount for 35 years and still have to pay £1,250 per month rent in retirement.

Also, rent rises with inflation, the mortgage payment doesn’t.

I know which I’d rather.

Not only would she have a house, but she would be able to sell that house for far more than she paid for it, and recoup most of what she’d paid out on the mortgage

Absolutely, using a mortgage overpayment calculator, even an extra 50 quid a month can take a couple of years off the total length of the mortgage and save you a good couple of grand in interest.

It was in the 70’s.

Whatever happened to offset mortgages? They let you keep your savings in a special account, and whatever was in there would act as a temporary overpayment on the mortgage, so you were only charged interest on the balance MINUS your savings. But you could withdraw money if you needed it.

I had one in the 2000s - my paycheque went straight into it each month. It was a great way of shaving £££ off the mortgage.

Except in most cases these days renters are not in social housing, they're in private rented, paying their landlords mortgage, including any interest on the loan.

Agree with this but it’s so frowned upon when you rent. I find it very frustrating and I absolutely hate it but currently there is fuck all I can do.
I feel looked down on especially by family because it is viewed as so important that we buy our own house. Of course we’re trying . Who fucking isn’t but it’s easier , way easier , said than done.

They are still available - eg https://www.coventrybuildingsociety.co.uk/member/help/mortgages/offset.html . Interest rates are a bit higher generally than more normal repayment or interest-only mortgages.

If you think how much a house cost 35 years ago you probably still make your money back but 1200 on mortgage v 1200 on rent can be argued you get something at the end. With rent, and a decent landlord, you get piece of mind along the way that if the boiler goes it’ll be fixed regardless of your financial position.

The bit that sways me to ownership is what happens when you retire and still have to pay rent? That scares me.

Even as little as £150 a month is taking 8 years off my mortgage.

Flipping heck, if £150 per month is such a little amount you must be earning a fortune! I don’t know anyone who sees that much as small.

Ahh but at the end of the term, you have an asset, and a home that you can rely on having.

I'm not earning a fortune at all and I know most doing regular overpayments pay significantly more than that (or do a large 10% lump sum yearly).

And at risk of being evicted at any time...

It's small compared to the size of the mortgage