Björn Berg answers questions by the readers of online news outlet Vísir.

A 40-year-old woman asks:

It’s understandably frustrating to make mortgage payments month after month and still feel that the loan has barely moved.

But your payments have not been wasted.

To see why, we need to put on the right pair of glasses and look carefully at the numbers.

Why has the loan barely gone down after 14 years?

When you take out a long-term indexed mortgage, it’s not unusual for the outstanding balance, measured in krónur, to rise or remain almost unchanged even when you make every payment the lender asks for.

The reason is that the loan has two types of cost.

First, you pay interest. That cost arises each month and is included in the monthly payment.

Second, the loan balance is adjusted in line with inflation. The increase in the consumer price index from the previous month is added to the outstanding balance. You’re not billed for it immediately. Instead, the loan itself rises with inflation.

When loans are set up with the lowest possible monthly payment in mind, for example over 40 years, the monthly payments don’t always reduce the balance very much in the early years.

That can make it feel as if the payments have achieved nothing.

What is the loan worth today?

This is where it helps to stop for a moment.

ISK 22.5 million was worth much more in 2011 than it is today.

What ISK 22.5 million could buy in 2011 would cost around ISK 41 million today. In real terms, which means after adjusting for inflation, you’ve therefore managed to reduce the loan by almost half.

That doesn’t make the monthly payments feel lighter, of course.

But it does change how we should judge the progress you’ve made.

What is the house worth?

At the same time, the value of the house has probably risen a great deal.

Let’s say the house cost ISK 45 million in 2011, so the loan covered half of the purchase price.

If the value of the house has followed the average increase in the square metre price of detached homes in Reykjavík since then, it could be worth more than ISK 150 million today.

That means your equity may have increased significantly.

And that is very good news.

How can you pay the loan down faster?

So the situation may be better than it first appears.

But there is still work to do.

Judging from your question, you would like to see clearer progress and watch the balance fall faster than it has so far.

At the moment, that can be difficult unless you increase the monthly payment quite a lot. Mortgage availability from both pension funds and banks has changed quite a bit, options are limited, and attention seems to be focused mainly on first-time buyers rather than people who want to refinance.

I don’t know the details of your current loan, your payment capacity or your refinancing options.

But one point matters more than almost anything else: the main factor affecting how quickly you repay the loan is how much you choose, and are able, to pay each month.

A simple example

The monthly payment on an ISK 21 million indexed annuity mortgage over 26 years would be about ISK 109,000 if the interest rate is 4%.

If you only pay the bills the lender sends you, the monthly payment will rise somewhat in krónur until the loan is fully paid off when you are 66.

If you add an extra ISK 50,000 a month, and we assume inflation of 3.5% over the period, the monthly payment should not need to rise in the same way.

Your ability to pay may also improve over time as wages rise. That could allow you to make larger extra payments later and finish the loan several years ahead of schedule.

For comparison, if you decide to pay a fixed ISK 209,000 a month until the debt is fully repaid, then based on these assumptions you would be debt-free at 53.

That is a very different outcome.

Are there better opportunities ahead?

We don’t know whether interest rates will fall, or what mortgage options will look like next week, let alone next year.

That means each of us needs to keep an eye on the market, try to secure suitable mortgage terms when they are available and pay as much towards the loan as we can reasonably afford.

Use a mortgage calculator to see what higher payments or a different loan type could do to the final result.

Don’t be afraid to refinance if a better option becomes available.

But don’t let the current balance of your loan discourage you too much.

Despite how it feels, you have made real progress.