# Calculating Interest/Capital Repayments Flashcards

1
Q

CAPITAL AND INTEREST PAYMENTS ON A CAPITAL REPAYMENT MORTGAGE

The monthly payment on a new capital repayment loan of £60,000, spread over 25 years, at an interest rate of 5 per cent is £354.78. This is taken from standard repayment tables available online.

Assuming that the interest rate remains unchanged for the whole of the first year, the amount of interest payable in that year is:

60,000 ÷ 100 x 5 = £3,000

The interest element of each monthly payment in the first year is:

3,000 ÷ 12 = £250

The amount of capital repaid in the first year is therefore:

(£354.78 – £250.00) x 12 = £1,257.36

If the interest rate were 10 per cent, the monthly payment on £60,000 over 25 years would be £550.86.

The amount of interest payable in the first year is:

60,000 ÷ 100 x 10 = £6,000

The interest element of each monthly payment in the first year is:

6,000 ÷ 12 = £500

The amount of capital repaid in the first year is therefore:

(£550.86 – £500) x 12 = £610.32

The examples illustrate that the higher the interest rate charged, the smaller the amount of capital that is repaid during the early part of the mortgage term.

A

Not sure what the divide by 100 refers to…

2
Q

Monthly interest payments are easily calculated.

The capital is multiplied by the interest rate and then divided by 12. For example, a £150,000 interest-only mortgage with an interest rate of 5 per cent would be: £150,000 x 5% = £7,500 ÷ 12 = £625 per month.

A

Interest Only Mortgages

OR

Working out the INTEREST payment part of a C&I Mortgage

Would still need to calculate the capital amount due