Silly Question about Mortgages

Just wondering. When you take out a mortgage and the monthly payments are xxx per month over 25 years etc. Does this mean that (without considering interest rate movements) your monthly repayment amount is the same 25 years later ie lower due to wage inflation?

Yes. If you take interest rates out of the picture.

Or could be higher due to wage deflation…

Yes, that was always the main arguement against long term renting.

It was assumed that your wages would constantly inflate and that rents would do likewise whilst your mortgage stayed the same.

This assumption was valid back when we had our own national currency that could be adjusted by our own central bank to suit our own economic requirements.

High Inflation will not be permitted by the Bundesbank (aka The European Central Bank) because the last time that Germany had a long period of inflation it had some nasty consequencies they’re none too proud of…

The monthly payment remains the same. It is the proportion of this payment that is used to pay off the interest and principal that varies.

The mortgage payment will change:

When interest rates change

When the amount of the mortgage changes such as paying off a lump sum or topping-up the mortgage

When the interval changes such as if you reduce or extend the mortgage duration.

Take advice and stress test your ability to pay under various circumstances so you understand what you are getting in to.

To illustrate, this shows the payment schedule for a 250,000 mortgage over 25 years (300 monthly payments) at 5% interest rate:

Payment Amount Interest Principal 1 €1,461.48 €1,041.67 €419.81 2 €1,461.48 €1,039.92 €421.56 3 €1,461.48 €1,038.16 €423.31 4 €1,461.48 €1,036.40 €425.08 5 €1,461.48 €1,034.63 €426.85 6 €1,461.48 €1,032.85 €428.63 7 €1,461.48 €1,031.06 €430.41 8 €1,461.48 €1,029.27 €432.21 9 €1,461.48 €1,027.47 €434.01 10 €1,461.48 €1,025.66 €435.82 11 €1,461.48 €1,023.84 €437.63 12 €1,461.48 €1,022.02 €439.46 13 €1,461.48 €1,020.19 €441.29 14 €1,461.48 €1,018.35 €443.13 15 €1,461.48 €1,016.50 €444.97 16 €1,461.48 €1,014.65 €446.83 17 €1,461.48 €1,012.79 €448.69 18 €1,461.48 €1,010.92 €450.56 19 €1,461.48 €1,009.04 €452.43 20 €1,461.48 €1,007.16 €454.32 21 €1,461.48 €1,005.26 €456.21 22 €1,461.48 €1,003.36 €458.11 23 €1,461.48 €1,001.45 €460.02 24 €1,461.48 €999.54 €461.94 25 €1,461.48 €997.61 €463.86 26 €1,461.48 €995.68 €465.80 27 €1,461.48 €993.74 €467.74 28 €1,461.48 €991.79 €469.69 29 €1,461.48 €989.83 €471.64 30 €1,461.48 €987.87 €473.61 31 €1,461.48 €985.89 €475.58 32 €1,461.48 €983.91 €477.56 33 €1,461.48 €981.92 €479.55 34 €1,461.48 €979.92 €481.55 35 €1,461.48 €977.92 €483.56 36 €1,461.48 €975.90 €485.57 37 €1,461.48 €973.88 €487.60 38 €1,461.48 €971.85 €489.63 39 €1,461.48 €969.81 €491.67 40 €1,461.48 €967.76 €493.72 41 €1,461.48 €965.70 €495.77 42 €1,461.48 €963.64 €497.84 43 €1,461.48 €961.56 €499.91 44 €1,461.48 €959.48 €502.00 45 €1,461.48 €957.39 €504.09 46 €1,461.48 €955.29 €506.19 47 €1,461.48 €953.18 €508.30 48 €1,461.48 €951.06 €510.42 49 €1,461.48 €948.93 €512.54 50 €1,461.48 €946.80 €514.68 51 €1,461.48 €944.65 €516.82 52 €1,461.48 €942.50 €518.98 53 €1,461.48 €940.34 €521.14 54 €1,461.48 €938.17 €523.31 55 €1,461.48 €935.99 €525.49 56 €1,461.48 €933.80 €527.68 57 €1,461.48 €931.60 €529.88 58 €1,461.48 €929.39 €532.09 59 €1,461.48 €927.17 €534.30 60 €1,461.48 €924.95 €536.53 61 €1,461.48 €922.71 €538.76 62 €1,461.48 €920.47 €541.01 63 €1,461.48 €918.21 €543.26 64 €1,461.48 €915.95 €545.53 65 €1,461.48 €913.67 €547.80 66 €1,461.48 €911.39 €550.08 67 €1,461.48 €909.10 €552.38 68 €1,461.48 €906.80 €554.68 69 €1,461.48 €904.49 €556.99 70 €1,461.48 €902.17 €559.31 71 €1,461.48 €899.84 €561.64 72 €1,461.48 €897.50 €563.98 73 €1,461.48 €895.15 €566.33 74 €1,461.48 €892.79 €568.69 75 €1,461.48 €890.42 €571.06 76 €1,461.48 €888.04 €573.44 77 €1,461.48 €885.65 €575.83 78 €1,461.48 €883.25 €578.23 79 €1,461.48 €880.84 €580.64 80 €1,461.48 €878.42 €583.05 81 €1,461.48 €875.99 €585.48 82 €1,461.48 €873.55 €587.92 83 €1,461.48 €871.10 €590.37 84 €1,461.48 €868.64 €592.83 85 €1,461.48 €866.17 €595.30 86 €1,461.48 €863.69 €597.78 87 €1,461.48 €861.20 €600.27 88 €1,461.48 €858.70 €602.78 89 €1,461.48 €856.19 €605.29 90 €1,461.48 €853.67 €607.81 91 €1,461.48 €851.13 €610.34 92 €1,461.48 €848.59 €612.89 93 €1,461.48 €846.04 €615.44 94 €1,461.48 €843.47 €618.00 95 €1,461.48 €840.90 €620.58 96 €1,461.48 €838.31 €623.16 97 €1,461.48 €835.71 €625.76 98 €1,461.48 €833.11 €628.37 99 €1,461.48 €830.49 €630.99 100 €1,461.48 €827.86 €633.61 101 €1,461.48 €825.22 €636.26 102 €1,461.48 €822.57 €638.91 103 €1,461.48 €819.91 €641.57 104 €1,461.48 €817.23 €644.24 105 €1,461.48 €814.55 €646.93 106 €1,461.48 €811.85 €649.62 107 €1,461.48 €809.15 €652.33 108 €1,461.48 €806.43 €655.05 109 €1,461.48 €803.70 €657.78 110 €1,461.48 €800.96 €660.52 111 €1,461.48 €798.21 €663.27 112 €1,461.48 €795.44 €666.03 113 €1,461.48 €792.67 €668.81 114 €1,461.48 €789.88 €671.59 115 €1,461.48 €787.08 €674.39 116 €1,461.48 €784.27 €677.20 117 €1,461.48 €781.45 €680.02 118 €1,461.48 €778.62 €682.86 119 €1,461.48 €775.77 €685.70 120 €1,461.48 €772.92 €688.56 121 €1,461.48 €770.05 €691.43 122 €1,461.48 €767.17 €694.31 123 €1,461.48 €764.27 €697.20 124 €1,461.48 €761.37 €700.11 125 €1,461.48 €758.45 €703.02 126 €1,461.48 €755.52 €705.95 127 €1,461.48 €752.58 €708.90 128 €1,461.48 €749.63 €711.85 129 €1,461.48 €746.66 €714.82 130 €1,461.48 €743.68 €717.79 131 €1,461.48 €740.69 €720.78 132 €1,461.48 €737.69 €723.79 133 €1,461.48 €734.67 €726.80 134 €1,461.48 €731.64 €729.83 135 €1,461.48 €728.60 €732.87 136 €1,461.48 €725.55 €735.93 137 €1,461.48 €722.48 €738.99 138 €1,461.48 €719.40 €742.07 139 €1,461.48 €716.31 €745.16 140 €1,461.48 €713.21 €748.27 141 €1,461.48 €710.09 €751.39 142 €1,461.48 €706.96 €754.52 143 €1,461.48 €703.81 €757.66 144 €1,461.48 €700.66 €760.82 145 €1,461.48 €697.49 €763.99 146 €1,461.48 €694.30 €767.17 147 €1,461.48 €691.11 €770.37 148 €1,461.48 €687.90 €773.58 149 €1,461.48 €684.67 €776.80 150 €1,461.48 €681.44 €780.04 151 €1,461.48 €678.19 €783.29 152 €1,461.48 €674.92 €786.55 153 €1,461.48 €671.65 €789.83 154 €1,461.48 €668.36 €793.12 155 €1,461.48 €665.05 €796.42 156 €1,461.48 €661.73 €799.74 157 €1,461.48 €658.40 €803.07 158 €1,461.48 €655.05 €806.42 159 €1,461.48 €651.69 €809.78 160 €1,461.48 €648.32 €813.16 161 €1,461.48 €644.93 €816.54 162 €1,461.48 €641.53 €819.95 163 €1,461.48 €638.11 €823.36 164 €1,461.48 €634.68 €826.79 165 €1,461.48 €631.24 €830.24 166 €1,461.48 €627.78 €833.70 167 €1,461.48 €624.30 €837.17 168 €1,461.48 €620.82 €840.66 169 €1,461.48 €617.31 €844.16 170 €1,461.48 €613.80 €847.68 171 €1,461.48 €610.26 €851.21 172 €1,461.48 €606.72 €854.76 173 €1,461.48 €603.16 €858.32 174 €1,461.48 €599.58 €861.90 175 €1,461.48 €595.99 €865.49 176 €1,461.48 €592.38 €869.09 177 €1,461.48 €588.76 €872.71 178 €1,461.48 €585.12 €876.35 179 €1,461.48 €581.47 €880.00 180 €1,461.48 €577.81 €883.67 181 €1,461.48 €574.12 €887.35 182 €1,461.48 €570.43 €891.05 183 €1,461.48 €566.71 €894.76 184 €1,461.48 €562.99 €898.49 185 €1,461.48 €559.24 €902.23 186 €1,461.48 €555.48 €905.99 187 €1,461.48 €551.71 €909.77 188 €1,461.48 €547.92 €913.56 189 €1,461.48 €544.11 €917.36 190 €1,461.48 €540.29 €921.19 191 €1,461.48 €536.45 €925.02 192 €1,461.48 €532.60 €928.88 193 €1,461.48 €528.73 €932.75 194 €1,461.48 €524.84 €936.64 195 €1,461.48 €520.94 €940.54 196 €1,461.48 €517.02 €944.46 197 €1,461.48 €513.08 €948.39 198 €1,461.48 €509.13 €952.34 199 €1,461.48 €505.16 €956.31 200 €1,461.48 €501.18 €960.30 201 €1,461.48 €497.18 €964.30 202 €1,461.48 €493.16 €968.32 203 €1,461.48 €489.12 €972.35 204 €1,461.48 €485.07 €976.40 205 €1,461.48 €481.00 €980.47 206 €1,461.48 €476.92 €984.56 207 €1,461.48 €472.82 €988.66 208 €1,461.48 €468.70 €992.78 209 €1,461.48 €464.56 €996.91 210 €1,461.48 €460.41 €1,001.07 211 €1,461.48 €456.24 €1,005.24 212 €1,461.48 €452.05 €1,009.43 213 €1,461.48 €447.84 €1,013.63 214 €1,461.48 €443.62 €1,017.86 215 €1,461.48 €439.38 €1,022.10 216 €1,461.48 €435.12 €1,026.36 217 €1,461.48 €430.84 €1,030.63 218 €1,461.48 €426.55 €1,034.93 219 €1,461.48 €422.24 €1,039.24 220 €1,461.48 €417.91 €1,043.57 221 €1,461.48 €413.56 €1,047.92 222 €1,461.48 €409.19 €1,052.28 223 €1,461.48 €404.81 €1,056.67 224 €1,461.48 €400.40 €1,061.07 225 €1,461.48 €395.98 €1,065.49 226 €1,461.48 €391.54 €1,069.93 227 €1,461.48 €387.08 €1,074.39 228 €1,461.48 €382.61 €1,078.87 229 €1,461.48 €378.11 €1,083.36 230 €1,461.48 €373.60 €1,087.88 231 €1,461.48 €369.07 €1,092.41 232 €1,461.48 €364.51 €1,096.96 233 €1,461.48 €359.94 €1,101.53 234 €1,461.48 €355.35 €1,106.12 235 €1,461.48 €350.74 €1,110.73 236 €1,461.48 €346.12 €1,115.36 237 €1,461.48 €341.47 €1,120.01 238 €1,461.48 €336.80 €1,124.67 239 €1,461.48 €332.12 €1,129.36 240 €1,461.48 €327.41 €1,134.06 241 €1,461.48 €322.69 €1,138.79 242 €1,461.48 €317.94 €1,143.53 243 €1,461.48 €313.18 €1,148.30 244 €1,461.48 €308.39 €1,153.08 245 €1,461.48 €303.59 €1,157.89 246 €1,461.48 €298.76 €1,162.71 247 €1,461.48 €293.92 €1,167.56 248 €1,461.48 €289.05 €1,172.42 249 €1,461.48 €284.17 €1,177.31 250 €1,461.48 €279.26 €1,182.21 251 €1,461.48 €274.34 €1,187.14 252 €1,461.48 €269.39 €1,192.08 253 €1,461.48 €264.42 €1,197.05 254 €1,461.48 €259.44 €1,202.04 255 €1,461.48 €254.43 €1,207.05 256 €1,461.48 €249.40 €1,212.08 257 €1,461.48 €244.35 €1,217.13 258 €1,461.48 €239.28 €1,222.20 259 €1,461.48 €234.18 €1,227.29 260 €1,461.48 €229.07 €1,232.41 261 €1,461.48 €223.93 €1,237.54 262 €1,461.48 €218.78 €1,242.70 263 €1,461.48 €213.60 €1,247.87 264 €1,461.48 €208.40 €1,253.07 265 €1,461.48 €203.18 €1,258.30 266 €1,461.48 €197.94 €1,263.54 267 €1,461.48 €192.67 €1,268.80 268 €1,461.48 €187.39 €1,274.09 269 €1,461.48 €182.08 €1,279.40 270 €1,461.48 €176.75 €1,284.73 271 €1,461.48 €171.39 €1,290.08 272 €1,461.48 €166.02 €1,295.46 273 €1,461.48 €160.62 €1,300.86 274 €1,461.48 €155.20 €1,306.28 275 €1,461.48 €149.76 €1,311.72 276 €1,461.48 €144.29 €1,317.18 277 €1,461.48 €138.80 €1,322.67 278 €1,461.48 €133.29 €1,328.18 279 €1,461.48 €127.76 €1,333.72 280 €1,461.48 €122.20 €1,339.27 281 €1,461.48 €116.62 €1,344.85 282 €1,461.48 €111.02 €1,350.46 283 €1,461.48 €105.39 €1,356.09 284 €1,461.48 €99.74 €1,361.74 285 €1,461.48 €94.07 €1,367.41 286 €1,461.48 €88.37 €1,373.11 287 €1,461.48 €82.65 €1,378.83 288 €1,461.48 €76.90 €1,384.57 289 €1,461.48 €71.13 €1,390.34 290 €1,461.48 €65.34 €1,396.14 291 €1,461.48 €59.52 €1,401.95 292 €1,461.48 €53.68 €1,407.79 293 €1,461.48 €47.81 €1,413.66 294 €1,461.48 €41.92 €1,419.55 295 €1,461.48 €36.01 €1,425.47 296 €1,461.48 €30.07 €1,431.40 297 €1,461.48 €24.11 €1,437.37 298 €1,461.48 €18.12 €1,443.36 299 €1,461.48 €12.10 €1,449.37 300 €1,461.48 €6.06 €1,455.41

Shocking amount of interest being paid back

Yes indeed.

Try that on a 35 year mortgage and see how it looks.

If and when I buy again, I won’t be taking out a mortgage longer than ten years.

This nonsense of ‘the cheapest loan you will ever get’…the amount of interest paid is massive imo.

Also, and this a critical issue…the amount of your repayments in the first five years that are interest.

In the above example, in the first five years the mortgage holder pays of €87k…but of this €58k is interest. So after five years you’ve paid back €87k but your mortgage has only gone down from €250k to €221k.

Thats why, if you are half way towards paying down your mortgage, I don’t see much value in throwing in a lump sum…the interest is already paid anyway, more or less…there is no saving.

I hear ya, I’ve always thought that 10 years would be optimum but looking at the figures that way Im flabbergasted. You’d actually need to have a small mortgage so that you were able to overpay it significantly

looks like we are facing into inflation as only way of the deleveraging that has to happen - UK are at 5% inflation so over five years a 25% reduction in value of debt. Anybody on a fixed income or relying on savings is going to be squeezed.

It is not really about the interest. It is about what you can afford. A shorter repayment interval does lower overall interest paid but it also means higher overall repayments. Paying interest for loans is not intrinsically bad or evil. It does actually cost a lending institution money to loan money.

For comparison, the following shows the monthly payment on a 250,000 mortgage at 5% over various loan durations, as well as showing the total interest paid.

Years Payment Interest 10 €2,651.64 €68,206.55 15 €1,976.98 €105,872.13 20 €1,649.89 €145,993.44 25 €1,461.48 €188,467.53 30 €1,342.05 €233,169.46 35 €1,261.72 €279,957.06

€100k for ten years at 5% is €1060 a month. Total interest is €27k.

€100k over 30 years at 5% is €540 a month. Total interest is €93k.

The argument may well be…well in ten years time your wages will be higher.

The problem is that, in Ireland today, while rates are 5%, wage inflation is zero at best.

I spoke about this in another thread.

…Real interest rates have never ever been higher in Ireland, for a sustained period, like we are currently seeing.

I’m not suggesting that banks are being exploitative, or extortive.

Far from it.

My point would be, there is a lot of value in saving cash now, and buying later, if you are of the view that house prices don’t recover in the next 3 to 5 years. And investing that cash through taking out a smaller mortgage over a quicker time period. Because the cash you invest will save you a lot on interest repayments down the line.

The frontloading in the first five years are a shock alright - after paying out enormous amounts of cash each month, the arrival of the yearly statement from the bank quanitifying how much (or little) has been paid off the capital is a nastily sobering moment.

We have 14 years to run on a 21 year mortgage and just got our annual statement last month. Finally, finally, finally we are starting to make serious inroads into the capital. Of the total paid out in monthly repayments, the percentage of interest is now below 20%. Nice to see.