Annuity

Annuity is an annual instalment rate you have to pay for your mortgage

This annuity consists of the interest and the repayment of the 1st year.

e.g.: With a mortgage of £100.000 , an interest rate of 6% and a first repayment of 1%, the annuity is calculated as follows:

1st Year:

£6.000 interest
£1.000 repayment
£7.000 annuity

This annuity of £7.000 is fixed until the penultimate year, whereby the amount of interest is decreasing, while the repayment is increasing. In the 2nd year you don't have to pay the interest on £100.000 , only for £99.000 (You have already paid £1.000 repayment for the 1st year.)

The interest therefore in the second year is only £5.940 , the annuity fixed as £7.000 determines that you repay £1.060 .

2nd Year:

£5.940 interest
£1.060 repayment
£7.000 annuity

This calculation continues until the penultimate year:

In last year, the annuity is the sum of the interest on the outstanding debt plus the remaining debt itself. In our example:

34th Year:

£159,41 interest
£2.656,84 repayment (equal to the remaining debt from the 33rd. year)
£2.816,25 last annuity

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