Mortgage decision. How is my reasoning

[One_And_Only_Wanderers]

@ColdPhoenix

It’s because they’ve rebalanced the repayments so that you’re paying your new, lower payments over the remaining years.

As your previous repayments were higher, towards the end of the repayment schedule you’d be paying large chunks off the principal. With the new smaller payments you’ll be paying off less principal towards the end and so need to pay off more now.

Thanks for this. I knew there had to be an explanation, nice to hear it.

[jjimm]

@ColdPhoenix

As your previous repayments were higher, towards the end of the repayment schedule you’d be paying large chunks off the principal. With the new smaller payments you’ll be paying off less principal towards the end and so need to pay off more now.

While we’re on the subject, how is the schedule of principal payment worked out? If I pay, say, 350,000 over the course of a 25 year mortgage, of which 150,000 is in interest, how do they work out how much goes towards interest and how much towards principal, over the course of 25 years?

[One_And_Only_Wanderers]

@jjimm

While we’re on the subject, how is the schedule of principal payment worked out? If I pay, say, 350,000 over the course of a 25 year mortgage, of which 150,000 is in interest, how do they work out how much goes towards interest and how much towards principal, over the course of 25 years?

On my mortgage I believe the interest is calculated daily on whatever the current principal balance is.

On my modelling spreadsheet I just do it monthly, when I get my yearly statement I correct my principal balance from that, it’s usually only out by 2 or 3 hundred.

[jjimm]

@One_And_Only_Wanderers

On my mortgage I believe the interest is calculated daily on whatever the current principal balance is.

On my modelling spreadsheet I just do it monthly, when I get my yearly statement I correct my principal balance from that, it’s usually only out by 2 or 3 hundred.

I’ve seen a diagram showing the term of the mortgage, with a slope that goes top-left to bottom-right (the interest repayments) and a slope that goes from bottom-left to top-right (the principal). But I don’t know the formula.

However, I have found a page explaining it.

M = P [ i(1 + i)[sup]n[/sup] ] / [ (1 + i)[sup]n[/sup] - 1]

Hmm.

[jjimm]

Found a calculator that shows a “top-let to bottom-right” graph representing the principal owed.