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I am aware that when paying off a repayment mortgage the proportion of monthly payments going towards the interest is higher towards the start and eventually the proportion lowers towards the end of the term of the mortgage.

For example, a £100,000 mortgage at 3% over 30 years would have a monthly payment of £421.60. During the first month, the interest paid is £250 and the capital paid is £171.60 meaning that my equity in the house would increase by £171.60 for that month. This is easy to calculate if I stick to the scheduled repayments of the mortgage and do not overpay.

However I want to calculate the equity in my home factoring in irregular overpayments.

As the interest on my online banking increases daily, I am checking my mortgage on my online banking the last day of each month and subtracting the amount of interest from the amount of paid to give me the equity I currently have. This works well but if I forget to check the interest on the last day then I will not be able to go back and see the interest at this point. Also I would not be able to calculate the future equity gained each month until reaching that month end.

So is there another way of doing this that would also let me calculate the future equity gained based on overpayments?

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    Your lender's T&Cs, or maybe your specific mortgage paperwork, should specify the interest calculation (daily interest is common these days). Given that, and some actuals, it should readily be possible to make your own spready that comes up with the exact numbers your lender does. With such a spready, you can easily see the effect of overpayments that go direct to principal. – AakashM Jan 28 at 15:47
  • If you just want to see how the overpayments affect your balance over time, there are many spreadsheet templates on the web which you download and run in Excel. Enter the starting balance, monthly payment, years, etc, and also excess payment. – RonJohn Jan 28 at 16:11
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    As one of the answers points out, equity also depends on the value of your house which is both unknowable and quite volatile. Are you really interested in how the principal reduces? – GS - Apologise to Monica Jan 28 at 16:22
  • This seems weird: "I am checking my mortgage on my online banking the last day of each month and subtracting the amount of interest from the amount of paid to give me the equity I currently have." Why not just track the amount owed, and reduce that by the principal portion of your payments? It might be the same result as the way you're doing it, but it's more direct, and doesn't require additional subtractions if there is escrow or any other fees. And, doesn't every mortgage statement tell you the exact amount of P and I for every payment? – TTT Jan 28 at 16:26
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    @TTT That's the problem - my mortgage statement does not tell me the exact amount of P and I for every payment. – Jsk Jan 28 at 16:30
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So is there another way of doing this that would also let me calculate the future equity gained based on overpayments?

The equity immediately gained based on an overpayment is exactly the amount of that overpayment.

In general, your regular payment schedule will pay off all the interest for the month in question, plus a varying amount of the principal.

So any overpayments you make will always go in full to reducing the principal and hence increasing your equity in full. There might be some very small effects based on the way your bank applies them, but you can basically ignore those in practice.

You mention "future equity" so perhaps you also want to know how that overpayment benefits you in later months too. Since you've reduced the principal by more than expected, the interest charged will also reduce, which means more of your future regular payments will go to the principal too.

The easiest way to think about it is actually to pretend you have a separate bank account into which you put the overpayments, and that the bank account pays the same interest rate as your mortgage. If you calculate the interest you would have earned on that bank account, including compounding, that's how much extra equity your overpayments have given you.

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Equity is defined simply as the value of your house minus the amount you owe on it. There's not a direct way to calculate this, because you don't know what the value of your house is, without first selling it! But of course you can estimate it, whether by using the purchase price of your house, or other means.

Given that calculation of value, you can then determine your equity by simply subtracting the payoff amount for your loan. This payoff amount is generally easily obtained from your lender; I'm not familiar with the UK, but in the US the lender must provide it to you when you ask, and most provide it on their website on demand. The payoff amount is (principal owed) + (interest unpaid).

Further, you can calculate the daily interest trivially once you have a known principal amount, since that is simply your (daily) interest rate times the principal remaining. From that, you can determine how much of each payment is going to principal, and work it out from there.

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  • The difference between what you paid for the house and what you could sell it for is an important one, because if the value goes up, that extra money is yours, not the bank's (you owe the bank an amount of money, not an amount of house). So when you re-mortgage, you can use a higher valuation to show that the loan is a lower percentage of the equity, which will affect the rates available. Of course, the opposite is also true, if the value goes down for some reason. – IMSoP Jan 28 at 16:17
  • And yes, banks will generally show you the amount outstanding in their Online Banking systems. They will also send you an annual summary of the mortgage account, breaking down the the interest added, and the amount paid off. – IMSoP Jan 28 at 16:21
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Just build a pay-off spreadsheet. There are plenty of examples on-line. For example https://www.mortgagecalculator.org/download/excel.php

You can put any optimal payment in for any month and it will show you for each month the amount of interest paid, principal paid, outstanding balance and cumulative interest. Your equity is simply the original loan amount minus the outstanding balance.

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