is interest taken equally throughout the life of the mortgage

D

Dinarius

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I'm currently in the middle of a 20 year mortgage with AIB - standard variable.

This last year, we paid them about €22500.

The balance on the mortgage reduced by €13574. The rest was obviously interest.

My question is this: is interest taken equally throughout the life of the loan, or is it front-loaded?

Thanks.

D.
 
Interest is calculated on a daily basis. So more is taken in the early years when the balance due is higher.

You paid about €9,000 interest, so I would guess that the balance on your mortgage is around €200,000
 
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Hi Brendan,

The reason I was asking is that I was wondering if interest is front loaded, or is it pro-rata?

So, if I was to switch mortgage provider now, I was wondering if I would be carrying over a greater lump sum than I might otherwise be if both principle and interest were reduced at the same rate every year.

In other words, you borrow X over 20 years at Y % rate. If you stay with that provider over that 20 year period, you will repay X plus interest.

If the interest was front-loaded, the principle would reduce by less in the early years than in the later years of the mortgage. Then, in the later years of the mortgage, you would end up paying mostly money off the principle sum.

This would mean that if you switched providers after, say, 10 years, your first provider would have pocketed the interest and you would be carrying a larger than necessary principle sum over to your new provider.

But, I'm guessing from your reply that this isn't how it's done. In a given year, you repay interest at the going rate on the actual amount outstanding.

I'm just being paranoid, coz I'm thinking of changing provider. :)

Thanks.

D.

Ps. Please edit the thread title as you see fit. Thanks.
 
Dinarius said:
But, I'm guessing from your reply that this isn't how it's done. In a given year, you repay interest at the going rate on the actual amount outstanding.
Click to expand...

That is exactly it. Interest is calculated every day on the balance outstanding.

It need not be a factor in your switch to another provider.

Brendan
 
It's calculated on the principal remaining. The principal is huge in the beginning so there big interest payments and small capital payments. The interest amounts get smaller as you go along and the principal being payed off gets bigger.
 
Dinarius, here's some actual numbers. I picked examples that might like something like your mortgage ... monthly repayments on €300k over 20 years at 4.5%. On the roughly €1,900 per month payment, here is the evolving split between interest (red) and principal (green) over the life of the mortgage:


2VYzuxG.png



Here is the reducing principal outstanding:


5Q6nC0K.png
 
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