Essentially as with every mortgage or loan, every month
you are charged interest. On the basis that there are
twelve months in a year interest charged is
approximately equivalent to 1/12 of the rate your lender is charging
you per annum.
In addition to this cost you also have to pay an amount
that over the term of your debt will repay it in full.
This can be seen in the diagram below.
Please note the graph below is not accurate and is for
illustrative purposes only.
So in the early years your monthly payment to your
mortgage company is made up of interest and a bit of
capital however as the years roll by and the debt
reduces your overall payment is more made up of capital
than interest this is due to the fact that the amount of
interest charged reduces as the debt declines due to
repayment.
All this considered, your mortgage payments are not
necessarily the only expense to you as you should also
consider taking out buildings and contents insurance and
life cover.
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