Why Do I Still Owe So Much?

At some point in the remortgaging process, you will need to contact your existing mortgage lender to find out exactly how much it will cost to clear your current loan.

This can be a nasty shock – and not just because you may be asked to pay an exit fee of several hundred pounds.

(To find out more about this, read What are all these fees for?)


Interest-Only Mortgages

If you have an interest-only mortgage, you will still owe the entire amount you originally borrowed, because you have been paying back just the interest.


Repayment Mortgages

With a repayment mortgage (also known as a capital and interest mortgage), you will owe less than you borrowed.

But, even if you have been repaying it for several years, it may not be much less.

This is because your mortgage lender organises your payments so they stay level (unless the interest rate changes) throughout the mortgage term.

In the early years of your loan, when your debt it biggest, so is the interest bill and nearly all of the monthly payment goes towards it.

This leaves only a small part to put towards clearing the original debt (the capital).

But as time passes and more of the capital is paid off, the interest bill falls, freeing more cash to eat away at the original debt.


If that explanation made your head hurt, try looking at it this way

If you borrowed £100,000 over 25 years at an interest rate of 5.75 per cent, your monthly repayment would be £629. That’s a total cost of £7,548 a year.

Yet, because of all the interest on your debt, after a year you would have cleared only around £2,000 of the capital – leaving you with a debt of £98,000.

Each year you would repay slightly more capital, until after ten years you would owe around £75,000.

After 15 years, your debt would stand at just over £56,000, and after 20 years it would be slightly over £31,000.



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