Have I been mis-lead in to loan?

ViolaLass

It looks like you intend 'pre-computed' to mean the same as 'front loaded' (I've never heard the term pre-computed either) when it's not the same. Front loaded means that the interest is added at the beginning of the loan and there is no rebate regardless of how early you pay it off. Pre-computed appears to mean that the loan is worked out in full as if you were not going to pay it off early so that you pay a fixed amount each month (which is how most loans work).

They are not the same thing.

(Saying a mortgage /couldn't/ be front loaded makes no sense either. It /could/. Any fixed rate loan /could/.)

Hanky_Panky

ViolaLass wrote: »

It looks like you intend 'pre-computed' to mean the same as 'front loaded' (I've never heard the term pre-computed either) when it's not the same. Front loaded means that the interest is added at the beginning of the loan and there is no rebate regardless of how early you pay it off. Pre-computed appears to mean that the loan is worked out in full as if you were not going to pay it off early so that you pay a fixed amount each month (which is how most loans work).

They are not the same thing.

(Saying a mortgage /couldn't/ be front loaded makes no sense either. It /could/. Any loan /could/.)

I have always belived front loading and pre-computed to mean much the same thing - redpete seems to think it means two things - ok that could be so, I just don't know what else he is referring to.

Your description of front loading is in my opinion incorrect - yes interest and charges are added at the start of the loan however if you choose to settly early then a rebate to the total figure is applied to get to the net settlement figure.

Also in my experience a mortgage would never ever have all the interest for the whole 25 years added at the start - how could it ? For a start mortgages have variable interest rates whereas loans are usually fixed.

ViolaLass

Hanky_Panky wrote: »

Your description of front loading is in my opinion incorrect - yes interest and charges are added at the start of the loan however if you choose to settly early then a rebate to the total figure is applied to get to the net settlement figure.

With front loading, there is no rebate. That's the point and that's why people don't like them.

Hanky_Panky wrote: »

Also in my experience a mortgage would never ever have all the interest for the whole 25 years added at the start - how could it ? For a start mortgages have variable interest rates whereas loans are usually fixed.

If the mortgage were fixed rate (and plenty are) it would be perfectly possible.

Hanky_Panky

ViolaLass wrote: »

With front loading, there is no rebate. That's the point and that's why people don't like them.

OK - where have you got this information from. I don't think you are correct.

ViolaLass wrote: »

If the mortgage were fixed rate (and plenty are) it would be perfectly possible.

How many are fixed for the entire term ? Very, very few. This suggestion is unworkable and doesn't help your argument.

ViolaLass

Hanky_Panky wrote: »

OK - where have you got this information from. I don't think you are correct.

I'm really not here to argue about whether or not I'm right on this point. I've done my research and I'm happy with my answers. You're not, so go and do your own research.

opinions4u

Hanky_Panky wrote: »

I have always belived front loading and pre-computed to mean much the same thing - redpete seems to think it means two things - ok that could be so, I just don't know what else he is referring to.

Pre-computed, in the world of finance, appears to be an Americanism.

Your description of front loading is in my opinion incorrect - yes interest and charges are added at the start of the loan however if you choose to settly early then a rebate to the total figure is applied to get to the net settlement figure.

Personal loan and mortgage quotations in the UK have to show a "total amount payable figure". Call it front loaded. Call it precomputed. It is simply confirmation of the total cost of credit.

To settle in full, it doesn't matter if you calculate interest with a rebate back from the total amount payable or a month by month interest charge from the orignial sum borrowed. The settlement figure calculated should be the same.

That said, many loan agreements don't allow any credit for part repayment of capital. In other words, take out a £12k loan and pay off £6k and you will still be charged interest based on what the contractual balance is meant to be at that point in time. While the loan will be repaid early, the only interest saved is the amount that would have been charged later in the term.

Also in my experience a mortgage would never ever have all the interest for the whole 25 years added at the start - how could it ? For a start mortgages have variable interest rates whereas loans are usually fixed.

Having sold a mortgage fixed for 25 years I know that it is more than possible. Typically finance companies selling secured loans at a fixed rate have often done exactly that. And a secured loan is simply a mortgage secured on a proeprty.

Hanky_Panky

Hi opinions4u

Don't disagree with anything you have said - it also doesn't contradict anything I have said so not too sure what your point is - sorry.

You may have sold a fixed rate mortgage for 25 years - as I mention though the numbers of these are very, very small therefore inappropriate to compare that with a loan. Secured loans usually are regulated (or at least were) so again can't really be compared with a mortgage - by the way I have dealt with thousands of these .

Once again the point of my original post was that it is common to have a loan where the interest is calculated and added at the beginning of the loan - how it it subsequently settled is irrelevant to my point.

redpete

Hanky_Panky wrote: »

Your description of front loading is in my opinion incorrect - yes interest and charges are added at the start of the loan however if you choose to settly early then a rebate to the total figure is applied to get to the net settlement figure.

No, the interest is not added on at the beginning. A statement of the account after day 1 will not include the interest payable over the whole term, it will include the capital owed plus one day's interest. The interest payable over the whole term is used to calculate the monthly payment so that it is the same amount every month and by the end of the term you would have paid off all the capital.

Also in my experience a mortgage would never ever have all the interest for the whole 25 years added at the start

just like almost all loans then :-)

- how could it ? For a start mortgages have variable interest rates whereas loans are usually fixed.

But the monthly repayment is calculated in the same way I described above, it's just that the interest rate is variable and every time it changes the monthly payment changes (assuming it's a variable rate and not interest only).

Hanky_Panky

Interesting thread here which describes exactly what I am referring to - laughingly Clapton even contributed. The only slight bone of contention now is whether you have to pay all the interest even if you settle early. In the example below with HFC the borrower is given a rebate on interest 'unused' because they are settling early and this is exactly how I would expect it to work.

https://forums.moneysavingexpert.com/discussion/comment/13489975#Comment_13489975

Sorry redpete but interest is added on to the sum borrowed and the interest is front loaded exactly as I claim. By the way I have arranged 100's of these.

ViolaLass

The post you linked to (post 4) explains what front loading is and isn't. As I have stated, when interest is front loaded, you pay it all, regardless of when you pay the loan off. There is no rebate.

So far you have been rude about Clapton, claimed that mortgages not being front loaded made my point invalid (it did not. My point was simply that mortgages /could/ be made to be front loaded, not that they /are/. Plenty of loans are not front loaded, which does not mean that it would be impossible for them to be so) and shot yourself in the foot. Enough for one day?