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Please could somebody clarify the following scenario for me (first time buyer)? Are there any tips? Any differences if moving from one lender to another?

Supposing I take out a 25 year mortgage on a £100k property with a deposit of £60k. Suppose interest fees mean I have to pay off a total of £40k + £10k. If I start paying this, but I want to move to a new property, before paying the whole £10k interest, will I have less money than when I bought the first property? Assuming the first property sells for the same price for which it was bought.

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    Yes ... by the amount of interest you already paid. – Lawrence Jan 7 at 8:28
  • You can't move before paying mortgage interest. At closing, you will pay at least one month of interest. Even if all your other costs were at 0 if you bought a property today and sold it tomorrow for the same amount, you'd already lost money. – iheanyi Jan 7 at 9:46
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    @iheanyi - not entirely accurate. You pay that one month of interest to account for the delay in first billing; it's an artifact of the system. But were you to buy on day 1 and sell on day 2, you would definitely not be charged for interest which has not actually accrued - it would be accounted for when you sell. 4% APR is roughly 0.011% per day, so you would only pay that amount. – Istanari Jan 7 at 13:59
  • @Istanari interest will have accumulated over that one day. I'm not sure what you mean by "account for it when you sell". Unless you're increasing the purchase price to cover it which is not the case if you sell for exactly the same as you bought. – iheanyi Jan 8 at 15:49
  • @iheanyi - Of course interest will have accrued - but not a MONTH's worth of interest, only a single DAY's worth. I was correcting your erroneous (or misleading) assertion about paying at least one month. Further, it doesn't actually matter whether you pay that amount at closing (to buy), or at closing (to sell). – Istanari Jan 8 at 16:22
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If I start paying this, but I want to move to a new property, before paying the whole £10k interest, will I have less money than when I bought the first property? Assuming the first property sells for the same price for which it was bought.

Say you have to pay 40K principal loan amount and 10K interest over a period of 10 years. For simplicity of calculations say it comes to 4K principal and 1K in interest every year. If after 2 years; you have paid, 8K principal and 2K in interest. The house sells for 100K; you have to pay the balance principal amount of 40K-8K = 32K.
So you have cash of 100K-32K = 68K; but you have paid downpayment of 60K Plus 10K to bank. i.e. 70K. So yes you are short by 2K.

Realistically if you are selling you have to also factor in closing costs when you purchased the house. i.e. 100K was price of house; you may have spent 5K towards commissions and closing costs. Like wise when you sell it for 100K; you may again incur brokerage and other costs say 5K.

So if you buy and sell the house at same price; you will definitely be down by the commissions and other costs. You would gain by the extent of rent you may not have had to pay.

  • Thank you, I like this answer with numeric examples. So would you have to pay the whole 10K interest back at the time of selling or only the amount of interest that accrued while you were paying your mortgage? – petehallw Jan 7 at 14:13
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    @petehallw No you don't have to pay the interest. When you prepay the mortgage, you only pay the balance principal and not the future interest. – Dheer Jan 7 at 14:32
  • Where did this "Plus 10k to the bank" come from? Is it the closing costs / fees you mention in the next paragraph? If so I would edit that sentence to be more clear its not the interest, since those values are the same.. – Chris Jan 7 at 15:35
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    @Chris The EMI repayment of 2 years. – Dheer Jan 7 at 16:20
  • Ok, I would still try to avoid using the same value for different things to avoid confusion. Your answer has 3 10k values in it (EMI, total interest, and total commissions). – Chris Jan 8 at 15:48
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(I will assume from your use of pounds that you are in the UK)

With normal Mortgages the interest isn't added as some lump sum at the beginning, it accrues gradually. So if you repay the mortgage early you will pay much less interest than if you let it go to term.

Obviously you will have paid some interest in the time you owned the property, but you will have also hopefully got the use of the property for that time instead of paying rent.

However in addition to interest there are likely to be various fees, both for taking out the mortgage in the first place and in some cases for repaying it early.

A house sale itself will also involve significant costs, estate agents fees (for the seller), solicitors fees (for both buyer and seller), search and survey costs (for the buyer) and (unless it is a very cheap house) stamp duty (for the buyer). So if you assume house prices will stay the same buying a house is only likely to be worthwhile if you plan to keep it for a significant number of years.

On the other hand house prices in the UK have historically risen faster than inflation, we are a relatively small island with a lot of restritions on development.

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