Let's break this down with a simple example: You get a 30yr mortgage for $100,000 at 5%

If you paid $0 on principal your first year, the interest would be $100,000x0.05=$5000

Make it monthly: $5000/12=$416.67 rounded up to $417

On an amortization schedule, the fixed payment is calculated at $537, with $120 going to principal and $417 going to interest on your first payment. Exactly what you would expect to pay. The interest isn't front loaded, it's just the actual accrued interest of what you have borrowed.

When you pay the $120 in principal on your first payment, your debt reduces to $99,880. $99,880x0.05/12=$416 rounded. Therefore, your next payment, still at the fixed rate of $537 is now paying $121 in principal, and $416 in interest.

In short, when you have a large debt, you pay larger interest, when you have a smaller debt, you pay smaller interest. This isn't exploitation, just mathematics.

I conclude that they should just work out the total repayable and be honest and say this is a 70% mortgage. not claim it's 2% but just keep re applying that 2% every month or week or day as they see fit.

Most of the time, the total interest paid is included in the amortization plan. It's also easy to figure out. Using my example, the exact payment was $536.82.

$536.82x12x30=$193,255.20 Total($193,255.20)-Principal($100,000)=TotalInterest($93,255.20) give or take a dollar.

And so according to your desire, you'd want them to say it is a 93% mortgage.

The reason they don't is that interest rates and compounding are typically done annually. You also have the ability to make extra payments sometimes, which can pay it down faster. The faster you pay the debt, the less interest you pay.

For instance, if you win the lotto, receive a life insurance payout, or inheritance, etc and pay off the loan within the first year, it's no longer a 93% mortgage but a 5% one.

To me, it makes more sense to say, you owe $100,000 your first year, or $98,398 your second year, and that you'll be paying 5% interest over that year.

reading some of the replies , I understand a bit better.

Hey, kudos to you for admitting this! I mean that seriously. There are very few folks who actually try to learn and understand things: it appears that you're one of them.

> work out the total repayable

But that depends entirely upon how long you take to repay it. If you pay the loan aggressively up front, you pay less; if you make minimum payments for as long as possible, you pay more.

Lets break this down , 537 per month , 360 months = 193320. Thats 93% not 5%.

It’s 5% per year because you are charged interest on some schedule based on how much you have paid off. 5% is a rate, 93% is a total amount and it only applies if you pay the whole mortgage off at exactly the prescribed rate. Many banks’ mortgage calculators will show you the total amount paid anyway so it’s not like they’re hiding it.

Your point seems to be basically that because you can’t do the maths, the mortgage is misleading. That is maybe a fair argument in some cases with financial products. Investment banks are notorious for obscuring the true cost of deals with complicated maths. However this doesn’t seem like a case of that. If the interest rate is 5% APR and you are free to pay it off as fast or as slowly as you like within some bounds, for example, it is absolutely essential that you understand what a 5% rate means to know how the mortgage works.

edit: not to mention that 5% is already a contrived figure not representative of how the interest is actually applied, designed to make it easier for you to understand what you’re charged. Your interest is probably calculated monthly or daily, not yearly. They could present you a nice hypothetical yearly figure, or a nice just-as-hypothetical 93% three-year figure. What’s the difference? Neither of them are real. Your interest is charged monthly, so they’re equally fake and misleading.

Just as well, you get to start acting like you own the house from day 1.

That is wonderful phrasing on the idea. Thank you.

Why should there be no charge for borrrowing the money for 20 years? That doesn’t make sense, you have had the money for 1 month when you make the first payment, and so you are charged for it.

You do already have the money for 20 years - that’s what the lender “pays” for you on day one.

I don't understand this. You have negotiated to pay a fixed payment per month so why does it matter whether the money is paying off interest or the principal first? The bank didn't force you to get the loan.

It matters to the bank. Also, the interest can be written off against income taxes, which helps people more in practical money left over to use when they are earlier in the amortization, and probably their career.

Bank didn't force me. Society has made it virtually impossible for me to own a property without one. Which seems unfair when a lot of people got their property 35 years before I was born for the equivelant of 2 years salary.

That’s clearly a completely separate issue to how mortgage rates are presented