Mortgages How Much Are You Really Borrowing

Mortgages How Much Are You Really Borrowing



Mortgages – How Much Are you​ Really Borrowing?
How much are you​ paying back?
When considering a​ mortgage do you​ consider all of​ the​ right questions,​ for example do you​ consider which bank is​ best because of​ their reputation or​ do you​ instead look solely at​ the​ interest rate tables,​ do you​ look at​ the​ ability to​ switch mortgage provider or​ do you​ look at​ how long they can guarantee a​ given mortgage rate? These are of​ course all important questions and ones that should be given due consideration when choosing a​ mortgage provider – but there are more important questions.
Most of​ us consider a​ mortgage to​ be one of​ life necessary evils,​ after all it’s not nice to​ be in​ debt to​ the​ tune of​ the​ house price right .​
Well there’s actually one question that most people ignore,​ if​ you’re borrowing $100,​000.00 how much are you​ actually paying back?
The reason that most people ignore this fact when they consider choosing a​ mortgage,​ refinancing or​ embarking on​ any other kind of​ equity refinance is​ that on​ paper you​ are borrowing a​ given sum (100 K in​ this case).
Wrong!
You are borrowing a​ few thousand now but that is​ not the​ amount that you’ll be paying back.
This may seem like a​ bit of​ a​ nonsense statement but lets analyse it​ in​ a​ little detail.
We initially borrow $100,​000
The interest rate is​ 4.25% - per year
Our repayments are the​ interest + 4%
We take the​ mortgage/refinance over 25 years.
So our yearly figures are as​ follows:
Year 1:
Interest = $100,​000 / 100 * 4.25 = $4,​250
Amortisation (paying back) =$100,​000 / 100 * 4 = $4,​000
Total to​ pay back this year $8,​250
So now in​ year two we only owe $96,​000,​ so it​ looks like this:
Year2:
Interest = $96,​000 / 100 * 4.25 = $4,​080
Amortisation (paying back) =$100,​000 / 100 * 1 = $4,​000
Total to​ pay back this year $8,​080
So as​ you​ can see,​ there’s less interest to​ pay because we’re clearing the​ initial balance,​ but still we’re paying 4.25% per year,​ so if​ we borrowed $100,​000 to​ start with how much are we actually paying back in​ the​ end?
We’re actually paying back $151,​000 in​ the​ end,​ that’s right,​ the​ interest on​ the​ mortgage is​ $51,​000 – doesn’t seem such a​ good rate any more does it .​
But what if​ you​ decide to​ pay back over a​ longer period,​ that might help right? Wrong,​ if​ you​ double the​ term to​ 50 years (so paying back 2% per year),​ then the​ interest effectively doubles the​ amount of​ your mortgage to​ just over $200,​000.
Now perhaps when people discuss getting the​ best rate for the​ mortgage and seem to​ be messing about for a​ few points difference you​ can see why,​ perhaps now you​ can also understand that it​ is​ better to​ take a​ mortgage over the​ shortest possible time frame – it​ does mean that you’ll need to​ amortise faster but it​ also means that you’ll potentially save yourself thousands in​ interest payments.
If you​ are not financially in​ a​ position to​ really negotiate initially then perhaps one of​ the​ most important questions you​ should be asking is​ whether or​ not there is​ an​ early repayment option – you​ might have enough money to​ pay it​ of​ early but what’s the​ point if​ the​ bank will still charge you​ the​ same amount of​ interest?
If you​ want to​ run the​ simulation yourself here’s the​ code in​ C#,​ simply create a​ new project,​ add a​ button,​ double click on​ the​ button and cut/paste the​ following code:
int years =25; // years for mortgage
float mVal = 100000; // total amount borrowed
float intRate = (float)3.00; // interest rate
float result =0;
float totalAmountInt =0; // total interest payable
float yearlyAmount = mVal / years; // repayment per year
for (int I​ = 1,​ i
I don't seem to​ be able to​ post the​ rest of​ the​ code,​ email me and I'll send it​ to​ you.




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