UKs biggest lender ends IO mortgages without evidence.

DervProf

JonnyBravo wrote: »

The previous examples lead me to be sure you'll run an example where the repayment is cheaper. Not conclusive though and nothing to with the original discussion which you seem to be moving away from.
But I'm happy to play along.

Lets say your IO example used the £771.56/month (the diff between repayment and IO) and invested at 1% above the interest rate. Who wins then?

This is not about proving that RM will be any better, or worse off if he was on a repayment mortgage (just clarifying that).

I'm sure I have had this kind of discussion before, and when you start considering investing the money you aren't repaying, things get very messy indeed. Loads of assumptions have to be made about returns on that investment, and the argument goes off on huge tangent.

JonnyBravo

DervProf wrote: »

This is not about proving that RM will be any better, or worse off if he was on a repayment mortgage (just clarifying that).

So you're busy trying to prove that the differences between the mortgages are down to payment timings (of OP's vs regular payments) which are immaterial due to him acknowledging they were excluded (stripped out)?
This is farcical.

I'm off to Tesco's to start ripping them off like everyone else.
£20/day? Cant go wrong.

DervProf

RenovationMan wrote: »

DervProf wrote: »

EDIT: I have £27k sat in the bank waiting for June when the next 0% OP window opens, with a further £23,300 (sitting in a bond) waiting for the third and final year's 10% OP window.

Thank you. I think that's enought to work on.

I have some other work to do, but I'll get back with some calculations very soon.

You say you have already overpaid 27k. So will the total overpayment be 27k + 27k + 23K ?

DervProf

Or is 27K in June the 1st overpayment, then 23K next June ?

DervProf

RenovationMan wrote: »

DervProf wrote: »

I started the mortgage in May and paid the overpayment in June. You are correct that I would not have paid such a high capital repayment as a one-off if I was already making capital repayments monthly.

I have to go out for an hour or so. I`ll work out some figures, then get back to you.

In summary, here is what I'll do.....

£300K IO.

27K OP after 1 month.
27K OP after 12 months.
23K OP on the last day of the deal.

IR = 2.55%

I'll try to work out the amount of interest you have paid in that 3 years.

Then I'll do this......

£300K repayment.

(27K - the capital repayments after 1 month) OP.
(27K - the capital repayments for 11 months) OP after 12 months.
(23K - the capital repayments for 12 months) OP after another 12 months.

I'll repeat the calculations based on 4.55% IR. We'll then look at the differences (if any) in how much interest was paid in each case. And to avoid any confusion, we can look at the overall cost in each case.

JonnyBravo

RenovationMan wrote: »

Oooh, what's this all about?

Price check vs Asda, then Double the Difference.
I'm gonna cream them. Seems like every other mofo is, so I'm late to the party.
Today was deodorant day. I use that Right Guard. More than I'll use in a year for the princely net sum of 3p each. It's good having the space to store it with no problems and lets face it, it aint gonna go off.... and it stops me from smelling off :rotfl:


Ker-ching.

DervProf

£300K, 20 year mortgage, we are looking at the first 3 years.

IO

Monthly interest 1 month @ £638, then a 27K op, 11 months @ £579

End of year 1, outstanding capital = £272362 then 27k op, 12 months @ £520

End of year 2, outstanding capital = £244665 then £24.3K op, 12 months @ £467

End of year 3, outstanding capital = £219,791. Interest paid = £18851.

Repayment.

Monthly payment (inc capital, of course) for month 1 = £1597, then a 27K - £959 op (£959 was used in month 1 as repayment, rather than the £638 it would have been on IO) 1st op = £26041.

End of year 1, outstanding capital is £261694, 2nd op is £16451 (27K - the extra money spent to make the repayments @ 1597 per month (12 x £959))

End of year 2, outstanding capital is £233973, 3rd op is is £12792 (24.3K - the extra money spent to make repayments @ 1597 per month (12 x £959))

End of year 3, outstanding capital is £210474. Interest paid must be less than if the same payments had been made, as the outstanding capital is now ~ £9K lower, yet RM will have payed out the same amount from his own money into the mortgage.

I think my sums are correct.

I am a little suprised that there is such a "saving" to be made by paying the same amount in, but comparing an IO to a repayment.

If you do the same sums with a higher interest rate, the difference would be larger (I think).

Hang on a second !

It isn't 12 x 959 in the second and third years. It's more than that, as he would have had lower IO payments in those years (due to the reduced capital owing after the repayments)

I think the correct description is FAIL. I think my brain just threw an exception.

DervProf

RenovationMan wrote: »

DervProf wrote: »

The OP was £30k not £27k after the first month.

This will be an interesting calculation, especially for me, but it wont prove what your hoping it will.

Won't make much difference.

DervProf

Before we judge my calculations, I'd like to check them again. Something doesn't look right. I must have made a mistake somewhere. To be fair, I do need to go out for a while. I will come back to this to look at it again.

Go on, give me both barrells, but I am certainly not avoiding the issue, or trying to wriggle out of it. As I have said before, If I am proved wrong, I will admit it. Looks like that my proof might be wrong at the moment ! :eek:

Really2

Real life example.

I took out a lifetime tracker before rates crashed (This has to be IO 0.49% above BOE Base).

I pay out the same as the equiverlent 3 year fixed at the time 5.8% (£178500 mortgage around £1140pm, So around £140 interest around £1000 offset).

I have repaid £28,500 in capital since late 2008. I very much doubt the repayment option would be the same? (as I would be on a 5.8% fixed rate)

Like for like for me would be treating two the same. If i would be using repayment I would use fixed rates. If I was going IO I would use discounted variable or what I thought rates would be doing (so fixing if I expected rates to go higher than the fixed rate).

Now I can jump ship at any time, so if rates do nudge up I can fix if I want or just let the offset do some work for my money.
IO takes managing, but it is a useful tool for those that want to overpay quickly as there are mainly no limits on what you want to pay back (unlike other products EG fixed)