UKs biggest lender ends IO mortgages without evidence.

ninky_2

neverdespairgirl wrote: »

Not true for me - I know lots of people who have I/O mortgages, because lots of my mates are barristers, and therefore self-employed. It makes sense to have a fixed lower payment, to help cash-flow the months where you get £350 in cheques coming in, and then pay a chunk off when you get a nice cheque in.

same reason i have one.

(didn't realise barristers were self-employed.)

DervProf

RenovationMan wrote: »

Oh, it's not a competition?

Not it's not. It's a forum where people sometimes make inaccurate statements (especially to suit their own arguments or financial situations).

I would have thought that with your relatively large mortgage, you might understand the difference between IO and repayment, and the difference in cost between the two, with ot without increased interest rates.

Make accurate statements and there'll be -

RenovationMan wrote: »

No drama, no fuss and no worries.

Either that, or put me back on ignore. They say ignorance is bliss, but it pays to be less ignorant about your own finances.

Now, let's get this sorted. There's no need to end up with pages and pages of posts, all you need to do is state your reasoning for your statement (the one ending "Strip out the repayment part of the mortgage and both will cost the same amount."). And no, I`m not going to argue with you if your reasoning makes sense. I shall admit I was wrong, if you can provide reasonable evidence that I was.

DervProf

RenovationMan wrote: »

Interest Only Mortgage:

£300k @ 2% interest rate = £6000pa / £500 pm.

Repayment mortgage with repayment part stripped out:

£300k @ 2% interest rate = £6000pa / £500 pm.

Therefore if there is a rate hike, both mortgages will increase by the same amount. This is because if you strip out the repayment part of a mortgage you are just paying the interest, hence why it will cost the same as an IO mortgage. Pretty fundamental, but you seemed to want it spelled out to you.

Now, is it sorted, will there be any need for pages and pages of you attacking me and me quietly and calmly defending myself. I somehow think there will be.

Ho hum.

Thank you. OK, but it isn't quite like that, is it ?

Say you haven't just started paying your mortgage (I assume you haven't just started paying your mortgage). Now do the sums.

DervProf

RenovationMan wrote: »

Pretty fundamental, but you seemed to want it spelled out to you.

I wanted it spelled out to me, if I had made a mistake in my calculations. Steady now, you seem to be a bit too sure of yourself.

Oh, and this will be sorted out nice and quickly if you don't move the goalposts. Look at what you typed when I first questioned your accuracy, and stick to that please).

DervProf

OK, I'd do some spelling out (more like maths, really).

Interest Only Mortgage:

£300k @ 2% interest rate = £6000pa / £500 pm.

Repayment mortgage with repayment part stripped out:

£300k @ 2% interest rate = £6000pa / £500 pm.

OK so far.

Now I am going to make an assumption here (let's not go back to that right now, eh ?). You have been paying your mortgage on IO for, let's say 5 years.

Assuming no change in IR, your payments would be

IO - £500 per month.

Repayment - £1271.56 per month.

After 5 years, some of the capital would have been paid off if you were on a repayment mortgage. I won't work out the figures, but let's say you've reduced the outstanding capital by £50K. If interest rates are still 2%, your repayments will still be £1271.56.

Here's the thing, the interest component of the repayment mortgage will be 2% per annum on £250K. If you had been paying IO, then you would still owe £300K.

NOW it's sorted (I expect I might have to spell it out a bit more, but I'll wait and see).

neverdespairgirl

ninky wrote: »

same reason i have one.

(didn't realise barristers were self-employed.)

We are indeed. And in the last 8 weeks, I have in fact had one cheque in, for £350 + VAT (-:

DervProf

neverdespairgirl wrote: »

We are indeed. And in the last 8 weeks, I have in fact had one cheque in, for £350 + VAT (-:

Do you mind ? I'm trying to give some basic financial advice here (not that I'm a financial adviser or anything, but I am trying to help someone by explaining how a mortgage works).

DervProf

RenovationMan wrote: »

I stopped reading at "Lets make an assumption that you have been paying your IO mortgage for 5 years". Well we dont need to assume that, because I havent and you know I have and I know I havent. I have been paying it since May 2010 it says so in my signature, in my MFW blog and I have said it many times on here.


Lets not have any of the "Economy Board theoretical examples to suit my argument", why not do the sums on a real-world example - My mortgage. The figures are there in my signature?

OK, but you should have "got it" by now. I'll respond asap.

Graham_Devon

Was an interesting battle to view from the sidelines

See Renno cracked first and went personal. Will derv follow on? I'm taking bets. Odds are 12/1

wotsthat

DervProf wrote: »

Here's the thing, the interest component of the repayment mortgage will be 2% per annum on £250K. If you had been paying IO, then you would still owe £300K.

NOW it's sorted (I expect I might have to spell it out a bit more, but I'll wait and see).

I've been getting a bit of a complex watching thread wondering what RM, and me, had missed.

What's been proved is that interest only loans are, well, interest only and that debt doesn't reduce.

I can see the wider technical point in that if mortgage debt doesn't reduce or increases then interest rate rises will affect those with the highest debt more.

I'm not sure there's any real demand for IO loans at the present time. Judging by the latest figures showing dramatic reductions in mortgage debt capital repayments are the order of the day and the calculations above work in reverse to prove that repayment loans are repayment loans.