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

Most people can easily shave £150 off their monthly spend - it’s one or two nights in the pub for a couple.

No don't stop them, its making me laugh and I've got toothache and need cheering up.

@Teriyakieverything

people don't know, what they don't know.

there's no need to be unkind.

the OP didn't understand that the 6% was per year, not just 6% as a one off. No spread sheet is going to help, if someone doesn't know something.

it may be obvious to you, but I bet there's plenty in life that is obvious to others that you don't know.

if you can't help an OP, the least you can do is close the thread & move on, without being unhelpful & rude

A couple who are spending 150 on two nights in the pub need AA. Mortgage payments are probably the least of their worries.

I used to overpay by a tenner a month. Even that got me to the halfway point a few months early. Fwiw mine is paid off now and I never did understand a lot of this stuff.

If you cared to check before posting you would know that compound interest is an integral part of the curriculum.

@FlyingSoap

'No point in buying'

Hiwd you work that out? Unless you have free accommodation somewhere.

You are absolutely right. What’s obvious to you is not always obvious to others.

This is in dollars, not pounds, but you can see from the chart how much interest and principal you are paying at any point in time in a mortgage.

Search 'Mortgage amortisation chart' and an interactive UK version should come up in your search field.

As you can see, 58% (more than half) of your payments will go on the interest and only 42% on the sum you owe.

That is why paying extra amounts when you can is so worthwhile, it comes straight off that interest and reduces it by a compounding amount.

£35 per person per night for 2 nights out.

And yes you're right even paying £10 a month more than basic payment helps.

We used to be told that the first third of your mortgage term was almost all interest, the second third was 50/50 capital and interest and the last third of the term was almost all capital.

For a mortgage your rate only applies during the fixed rate period. The interest rate for the amount beyond this is theoretical and doesn’t matter as your new rate will change it. Read up Martin Lewis - he explains it better than I can

It is in the national curriculum. It’s pretty basic.

They also lay it out for you when you take out the mortgage.

Where I live, mortgages are so much more expensive than the rent on the exact same property would be, that at the moment there really is no point in buying.

I haven't read the whole thread so sorry if someone has already said this. An offset mortgage can work well and save you years and interest. Basically you put your spare cash in a savings account with the same provider for your mortgage. You then only pay interest on the difference between your savings and the outstanding mortgage. This type of mortgage has two benefits 1) you still have access to your savings if you need them whereas if you overpay the mortgage that money is gone 2) you can overpay by the amount you are saving on interest each month.
We shaved years off our mortgage by doing this. Also, if mortgage rates fall in future and you can afford it, continue paying your current amount, that will also reduce the term. If you are disciplined with money and you save regularly, an offset can work well.

@megletthesecond

you're hilarious. With the price of drinks around here, you'd barely be tipsy! £75 for 2 nights out for a couple...if only

LMAO at all the posters who think they will be paying half a million to a million pounds over 30 years, and will then have a huge asset at the end of it. 😆

Nope. You will more than likely have to sell it to fund your care/to pay for a care home. That's if you are lucky enough to not lose it over the next 5 to 10 years because of astronomical interest rates!!! Even if you don't have to go into a care home, you will be shelling out 10s of 1000s of £££ over the years in repairs and maintenance, and will probably re-mortgage several times over the years. And by the time you have paid for your house, you will probably be well into your late winter years, and you can't take your amazing expensive 'asset' with you can ya now?

I re-iterate, being a mortgage owner is no better in any way shape or form than renting social housing. Anyone renting gets their rent paid if they can't work/lose their job/are on sick full time. If you're a mortgage owner, BANG goes your house. No-one pays your mortgage!!!

@Paintedtoenail

Agree with you alexa, 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.

I'm sorry that you have rude and obnoxious people in your life who think they're superior to you because they are mortgage owners. They are really not. The only difference between renters and mortgage owners is that the renters are not fuck loads in debt til they retire, they don't have to do their own repairs and maintenance, they have freedom, and they won't lose their home if they lose their job.

Tell these people trying to make you feel like shit all this. That should shut them up. Some mortgage owners are terribly smug and snobby. Different story though when the interest rates go up (again! and again! and AGAIN!)

Offset mortgages. They keep them quite secret but if you can make them work then you save a shit ton of money.

I see @FrancisFriedFish has explained it quite nicely!

If I carry on as I'm doing, then I'm told I'll be able to pay off my 18 year mortgage term in five years. I don't understand how but it sounds good to me.

My mortgage is £800+ lower than the rental prices for equivalent properties in my area and is a damn sight more secure than the rental market. If it gets sold to pay for my care, great, it means my children won't have to foot the bill either directly or indirectly through astronomical taxation.

Our home will be paid for when I’m 46 and my husband is 42. When we met he owned a property, he sold this and we were able to buy and do up a holiday home without any form of loan. We not only made money renting it out, the value increased, so we sold that and were able to move abroad much earlier than we imagined.

If I had bought an average property where lived with a 10% deposit on a 35 year mortgage at age 30, I would have spent the same money on the average rental in the area by age 69 (including deposit amount). This however assumes that rent does not rise and the rate of the mortgage stays at 6%. Very very few areas have cheap and habitable properties to rent. The home I bought I wouldn’t be able to afford to rent, properties in the building rent from £3,000 to £3,800 a month, our mortgage was nowhere near that.

I think you need to do a lot more research before committing to a mortgage if you didn't understand this.
If you thought you'd only pay 6% of £200,000, how do you think lenders are making any money?
A 35 year mortgage is very long and not a standard length at all.
My advice is to borrow as little as possible and pay it off as soon as you can, whether that be a via shorter term or making overpayments. But please, research more into this and ensure you understand all the jargon before making the biggest financial commitment of your life.

True, but the way it was taught to my son (he’s 17) was devoid of reality. They didn’t demonstrate very well how it would, for example, affect a mortgage. He was just shown the maths, but not how this might apply to real life. I had to explain it with pictures! Then he got it. He got a 6 in maths so not a total divvy lol but I would say, an average citizen. I suspect (as with all GCSEs and I don’t blame the teachers at all btw) - way too much focus on zipping through the curriculum and getting the grades. Not enough on actually helping our children become financially or mathematically literate in a true and applicable sense. Sigh. Thanks Gove / Hunt etc etc

They might teach compound interest in school but do you remember every single thing you were taught in school? I certainly don’t and I never needed to know about it until 15+ years later when it actually affected my life.

We spent time learning trigonometry and loci. So far, I've needed to use them... zero times in total, and I remember very little indeed about them.

It's good that they teach about things like compound interest and repaying mortgages at school, but the flipside of that is that you're probably too young for it to mean anything to you. Mortgages are just something irrelevant that your parents deal with; once you're old enough to get one, school will have finished years ago.

It's a shame they don't teach where money actually comes from in schools - discovering that those tens of thousands that the bank is determined for you to pay 'back' to them were only created at the point when you wanted to borrow them.

It's depressing that everyone has a rigid view based on their own circumstances. The 70s,80s,90s,00s,10s,20s have all been different periods. No one strategy had been ideal, low interest rates then utilising pensions or other investments have been better. High interest rates pay off debts first then invest. Paying off mortgages if you miss out on double digit growth in investments is no better than storing cash in low interest rate bank accounts whilst paying higher percentages on mortgages

The idea of a 25-year mortgage as standard - or even longer in the case of OP - is really misleading, I think.

People just assume that it means they have longer to spread the repayments over, but don't realise that the extra years on the term are chiefly just extra years of paying more interest for the sake of it.

Reducing the term really doesn't add that much extra to pay each month - purely because so much of it is designed to only pay the interest. People slate interest-only mortgages, but that's effectively what repayment mortgages are as well for the first 5+ years (probably more).