Front Loading Your Mortgage

Front loading your mortgage is the principle of making extra payments to reduce the total cost of your mortgage. Most standard mortgages are a combination of capital and interest repayment mortgages. If you borrow a mortgage for £150,000 for 25 years; the bank may work out that your monthly payments should be £1,100 per month. This payment includes the capital repayment of £150,000 plus the total interest payments for the 30 years. The total cost for repaying the mortgages will be £347,317, assuming an interest rate of 8%. Thus interest payments are greater than the capital payments.

In the beginning, most of your £1,100 monthly mortgage payment will go on interest, as little as 5% can go to reducing the capital. This means the payments are front loaded to paying interest. Therefore, you make very slow progress in reducing the capital and therefore the interest payable on the capital balance

If you can pay more capital repayments at the beginning, it will have a significant effect on reducing the total cost of the mortgage. Not only do you reduce the capital, but, you also reduce the cost of making interest on this for next 30 years. There is a snowball effect because reducing capital debt makes a big difference in reducing debt and future debt payments.

In the example above, if we could make a lumpsum payment of £2,500 in the first year The new cost of the mortgage will be £333,595 this is a saving of £13,721. Also, you will be able to pay off the mortgage in 23.8 years.

See more examples: Making Lumpsum payments to Your Mortgage

£13,721 is a pretty good saving for £2,500 investment. It would be hard to get a better return investing the £2,500 elsewhere. Therefore, try very hard to reduce your mortgage capital as soon as possible.

To front load your mortgage it is necessary to take out a flexible mortgage which doesn’t penalise extra early repayments. Whenever you get chance make extra lump sum payments to reducing the capital debt.

See also:

• Making extra mortgage payments
• Should I make Extra Mortgage Payments