Understanding your mortgage repayment schedule

Understand once and for all what a mortgage repayment schedule is and do your sums before you apply for a mortgage
Are you thinking about applying for a mortgage, and you have found a mortgage repayment schedule that you don't understand? You are not alone. Applying for a mortgage is a procedure that involves risks and requires careful thought, since the amount of money at stake usually means taking out a considerable debt and a commitment for several years with a bank. When applying for a mortgage, therefore, you will need to know certain specific terminology and, above all, understand all the details of the mortgage repayment schedule. Only this way will you be able to tackle the new challenge with guarantees.
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In financial terms, the main difference between a mortgage and a loan is, in fact, the size of the operation. Whereas in a loan the amount of money requested is usually less (generally, up to €75,000), a mortgage always involves larger amounts, which are usually used to purchase real estate. The fact that the amount in question is higher also, however, means there is a certain difference in the interest charges and repayments, as mortgages usually offer better interest rates and longer repayments periods.

In this article, learn about the key elements for properly managing your mortgage and understand, once and for all, one of the most important things of any mortgage: the repayment schedule.

Some mortgage terminology

If we had to identify the most important elements of a mortgage, perhaps we would talk about three major topics: the amount of capital lent, the interest rate and the repayment period.

The capital lent, or principal, in a mortgage is essentially the money that is requested in order to purchase the desired asset (an apartment, a house, a store, etc.). Therefore, the mortgage contract sets out the amount that the borrower (the party who receives the money) requests and receives from the lender (the institution that provides the money).

However, the lender of a mortgage lays down certain conditions for the provision of the funds, which in financial terms consists of setting a price for the capital provided. This is what is known as the interest rate. The interest rate is a “value” which credit institutions stipulate for lending money, depending on several aspects such as the amount lent, the repayment period, the profile of borrower, etc.

Thirdly, we have the amount that the borrower has to repay to the lender, which is known as the repayment. There are different types of repayment: ranging from identical fixed payments (French mortgage) to variable formulas with payments that increase over time. Nevertheless, whatever the case, determining the repayment plan involves a complex calculation resulting from the sum of the capital lent plus the interest charges accrued from the operation. For this reason, regardless of the type of repayment and whether the mortgage interest rate is fixed, variable or mixed, it becomes necessary to draw up what is known as the “mortgage repayment schedule”, which is essentially a detailed list of the terms and amounts for the repayment of the funds.

Having a thorough understanding of these schedules is important. Remember that a repayment installment (generally monthly) consists of a portion used to repay the capital which was lent (repayment) and another portion which is to pay the accrued interest. Therefore, you need to know what you are paying and how much you really have left to repay.

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The mortgage repayment schedule itself

A mortgage repayment schedule is, simply put, a detailed list of the different monthly payments established for the repayment of the mortgage. Therefore, in any repayment schedule, we will find the same columns:

1. A list of the different monthly payments or installments to be settled, from 1 to XX (however many monthly payments there are).

2. The interest rate applied when granting the mortgage.

3. The cost of each installment, according to the repayment system chosen; this is the sum of two factors: interest charges and capital repaid.

4. The accrued interest paid to the bank with the payment in question.

5. The total amount of capital repaid after paying the installment.

6. The outstanding capital pending repayment after all the previous payments.

Payment or monthly installment number
Interest rate applicable to the installment payment
Installment amount that is paid
Interest payment included in the installment
Amount of capital repaid with the installment payment
Outstanding capital
1-XX
X%
€XXX.XX
€XX.XX
€XX.XX
€XX,XXX.XX

Clarifying mortgage repayment schedules

Depending on the repayment method selected, some variants may appear. For example, when the interest rate is variable or mixed, or if an early repayment is made (in such a case, the amount of the debt will vary based on any additional interest charges that are applied and, naturally, the decrease in the outstanding capital).

In any of these cases, however, the percentage of the monthly repayment that consists of interest charges usually goes down as time passes by and more and more monthly payments are made, such that the progression of the penultimate column – the amount of capital repaid – grows as we approach the end of the mortgage term. In the later payments, therefore, less and less interest is paid and an increasing amount of the debt is repaid.

In conclusion, the repayment schedule allows you to instantly know various essential aspects, such as:

  • The total number of installments you have still to pay.
  • The amount of money that is repaid in each payment and what it is allocated to.
  • The percentage of interest paid in each monthly payment.
  • Interest-only periods.

A mortgage repayment schedule allows you to get a more precise idea of the split of an installment payment between the portion allocated to repaying the debt and the portion allocated to paying interest charges. You can request this type of calculation from your bank when managing your mortgage.

BBVA also offers you different mortgage options, tailored to your needs.

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