True-Cost-Mortgages
How to calculate the repayment
e.g.:
Amount of mortgage: 100.000 £
interest rate: 6%
1st repayment rate: 1%
| 1. Year: | 2. Year: | |||
| The starting debt (amount of mortgage) 100.000 £. An interest rate of 6% results in the 1. year to 6.000 £. With a starting repayment rate of 1% that makes a repayment of 1.000 £ | During the 1st year now 1.000 £ have been paid as a repayment, so the rest-debt is only 99.000 £ for the 2nd year. 6% interest on the rest-debt of 99.000 £ is 5.940 £. An annuity of 7.000 £ allows us this year a repayment of 1.060 £.
| |||
| interest | 6.000 | interest | 5.940 | |
| repayment | 1.000 | repayment | 1.060 | |
| annuity | 7.000 | annuity | 7.000 | |
The annuity doesn't change , the repayment increases.
Equal annuities are only valid for the "naked" mortgage. As soon as you add energy-costs to the equation, the annuity is changing.
Term of the mortgage: The duration of the term of the mortgage is much influenced by the initial repayment rate.
If you follow the above example and change the initial repayment to 2%, then compute for the 1st year as follows:
6.000 £ interest
2.000 £ repayment
8.000 £ annuity
The rest of the debt in the 2nd year is now only 98.000 £. The term of the mortgage will be shorter now.
Example for terms:
amount of mortgage: 100.000 £ and interest rate: 6%
term for an initial repayment of 1% = 34 years
term for an initial repayment of 2% = 24 years
term for an initial repayment of 3% = 19 years