Mortgages: Repayment
Summary
Timeline Planning is now modelling mortgages, both repayment and interest-only. This article focuses on repayment.
Examples are provided to illustrate how to set them up and to illustrate the modelling.
Introduction
Mortgages can significantly affect long-term financial planning, especially when deciding between repayment and interest-only structures.
This article focuses on how to set up and model repayment mortgages in Timeline Planning. Clear examples are provided to show how payments and outstanding debt evolve over time.
Setting up repayment mortgages
Timeline Planning allows users to model repayment mortgages linked to a property. To set one up, first define the property under Settings → Assets → Non-liquid properties. Select the property type (main home, holiday home, or rental) and enter its market and purchase values:
Under the property details, you can then add a mortgage. For a repayment mortgage, specify the outstanding balance, interest rate, and monthly payment amount:
Example of a repayment mortgage
John owns a main home with a market value of £270,000 and a purchase value of £250,000. He has £200,000 of outstanding debt on a repayment mortgage with a 4% rate and pays £1.000 p.m.
Accounting for interest, John will have 276 months (23 years) to completely repay the mortgage, as also shown in the cashflow chart:
The chart above illustrates this payment structure with 0% inflation under a Monte Carlo scheme. In Timeline Planning using historical data, cashflow charts are always in real terms, adjusted for inflation to show the actual value of payments over time.
Conclusion
Repayment mortgages steadily reduce both interest and capital over time, ultimately clearing the debt by the end of the term. This provides clients with a clear view of their repayment journey and the long-term affordability of their mortgage