UKs biggest lender ends IO mortgages without evidence.

DervProf

RenovationMan wrote: »

Whether I paid £30k off this year as a one of capital repayment or had a repayment mortgage where I paid off £13043 over the year in mortgage repayments and then a further £16,957 off in a capital repayment, the net result would be the same. For me, not for anyone else with an IO mortgage. Just me.

OK, lets make sure we are discussing the same point. Are you saying that the monthly payments, or the overall cost of buying the property are the same, IO or repayment ?

You have previously said that if you strip out the capital repayments from a repayment mortgage, the interest component will cost the same as if you were on an IO mortgage. You also asked me to illustrate my point with your "real world" figures, which I have done, and I await your reply.

I can see what you are doing in the above example, and we could go into more detail about the exact timing of the payments, it will be better if we don't do that as we will get into a real mess. It is an intersting point you make, and one that needs thinking about, because on the face of it, the two scenarios appear equal. However, you did ask me about your case, with your figures. Maybe we can discuss my earlier reply (Post #172).

JonnyBravo

RenovationMan wrote: »

Whether I paid £30k off this year as a one of capital repayment or had a repayment mortgage where I paid off £13043 over the year in mortgage repayments and then a further £16,957 off in a capital repayment, the net result would be the same. For me, not for anyone else with an IO mortgage. Just me.

Exactly. But you do an injustice to your argument. It would not matter for anyone. (payments made on same dates, same terms yadda yadda yadda etc)
I think the point he is trying to make that those on repayment will owe less when they overpay as they will have already have been paying off the capital. Quite how he doesn't get that the money comes from the same source and so the overpayment is likely to be lower I don't know.
Unless of course he has one of those money trees.

RenovationMan wrote: »

DervProf is trying to prove me wrong, but changed the goal posts half way through the discussion.

But of course. It is the recourse of many on here.
Everyone with an IO only mortgage is an idiot and doesn't know how they work. Everyone with a 5x mortgage is a debt junkie and going to lose their home when rates go up 1%. Everyone who has bought in the last 5 years will be kicking themselves when prices crash.

DervProf

JonnyBravo wrote: »

But of course. It is the recourse of many on here.
Everyone with an IO only mortgage is an idiot and doesn't know how they work. Everyone with a 5x mortgage is a debt junkie and going to lose their home when rates go up 1%. Everyone who has bought in the last 5 years will be kicking themselves when prices crash.

I don't think I have said many, if any of those things. You may not be implying that I did, but I'd just like to make that clear.

As far a goalpost changing is concerned, I am trying very hard to keep the same goalposts in the same position. It is very easy to use that accusation, but I am not going to waste time refuting it. I promise you I am trying to keep to your original statement made in post 146.

JonnyBravo

Here is the quote you seem not to like:
"To direct this conversation back to interest only mortgages and reply to your question at the same time, I would say that it makes no real difference whether I have an interest only mortgage or repayment one when rates start to rise. Strip out the repayment part of the mortgage and both will cost the same amount."

You seem to be suggesting that IO mortgages cost more. But to make this work you seem to be either paying more or paying earlier.

I'll now check your understanding of mortgages.

You do understand that the interest paid is dependent on the amount owing at the moment in question? You can reduce this in a scheduled manner (repayment mortgage) or an unscheduled way (overpayments on an IO) and the result will be the same if you reduce the capital in the same manner.

If you want I'll put up an example of an IO morgage where they overpay more than is paid on the repayment and it'll be cheaper overall than a repayment mortgage. I don't need to do that do I?

DervProf

JonnyBravo wrote: »

If you want I'll put up an example of an IO morgage where they overpay more than is paid on the repayment and it'll be cheaper overall than a repayment mortgage. I don't need to do that do I?

No, there is no need.

I have an offset mortgage where I started with IO, then quickly moved to repayment, then made regular overpayments and lump sum payments. I do understand how it works, and the effects on total cost of buying my house.

DervProf

RenovationMan wrote: »

My current mortgage deal is a 2.05% tracker, so my current rate is 2.55%. My signature provides the other information you need for the calculation.

Please read post 172. I used your figures in that reply. I thought we might be discussing that by now.

JonnyBravo

DervProf wrote: »

I am using a 25 year mortgage in this example. If your mortgage is over a shorter period of time, then the figure will be different, but the principal still stands.

Your mortgage at start £300,995.

Payments on IO, based on 2% IR = £501.66 per month.

After 1 year, your payements on the interest are £501.66 per month.


Today (let's say 1 year later), you owe £270,000.

Payments on IO, based on 2% IR will be £450 per month.

Now things get a bit "messy" because there is more than one way to discuss the repayment mortgage. If we simply assume that you switch to repayment today, that means you have a £270K mortgage for 24 years, in which case the interest component will be £436.48. If you had started out with a repayment mortgage, and made the £30,995 overpayment you would owe ~ £40K less (£31K op + £9K capital repayments made). Therefore, today you would owe ~ £260K if you had been on a repayment scheme. Either way, as time goes by, the interest component of a repayment mortgage reduces every time you make a normal monthly payment. Any overpayment will reduce the capital more quickly, so therefore reduce the interest component more rapidly.

But this is the cheat I'm on about.
You've used more money on the repayment side. Of course you owe less!!! :rotfl:
Add in the extra as overpayments (same terms dates yadda yadda etc) on the IO and it's the same.

DervProf

RenovationMan wrote: »

To direct this conversation back to interest only mortgages and reply to your question at the same time, I would say that it makes no real difference whether I have an interest only mortgage or repayment one when rates start to rise. Strip out the repayment part of the mortgage and both will cost the same amount.

That is the part I do not agree with, and why we are here now. It is precisely what I mentioned in my first response. It is not me who is changing the goalposts. I am using example to prove that statment to be incorrect. The only way that statement would be correct is if RM made precisely calculated overpayments at precisely the right times during his mortgage.

DervProf

JonnyBravo wrote: »

But this is the cheat I'm on about.
You've used more money on the repayment side. Of course you owe less!!! :rotfl:
Add in the extra as overpayments (same terms dates yadda yadda etc) on the IO and it's the same.

Please read my previous post.

JonnyBravo

DervProf wrote: »

No, there is no need.

I have an offset mortgage where I started with IO, then quickly moved to repayment, then made regular overpayments and lump sum payments. I do understand how it works, and the effects on total cost of buying my house.

Exactly same as me. Well, no, not quite. We are still officially on IO, but I've worked out what a repayment mortgage is and make "monthly overpayments". Not sure it helps this discussion though.

(It's for our rental property but secured on our house.... I'm sure this definitely won't help and might get a few others angry about my selfishness too!)