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UKs biggest lender ends IO mortgages without evidence.
Comments
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Maybe he's a barrister then.This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com0
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Maybe he's a barrister then.
Ooops !
Please don't laugh, but when he makes overpayments, do you think his monthly payments are reduced to reflect the lower outstanding balance on the mortgage ?
Oh go on then, laugh.......30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
Ooops !
Please don't laugh, but when he makes overpayments, do you think his monthly payments are reduced to reflect the lower outstanding balance on the mortgage ?
Oh go on then, laugh.......
:rotfl:
Yes, otherwise he'd end up overpaying more than the 10%!
C'mon Derv this is meant to be easy!0 -
So, we've just learnt that:
- Barristers have IO mortgages because their minted but have variable income.
- Self employed chippies and labourers have IO mortgages because they are poor.
Glad that's all sorted.
Be nice if barristers were minted.
It's more a vicious rumour than anything else....much enquiry having been made concerning a gentleman, who had quitted a company where Johnson was, and no information being obtained; at last Johnson observed, that 'he did not care to speak ill of any man behind his back, but he believed the gentleman was an attorney'.0 -
I put the wrong "their", the shame
This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com0 -
RenovationMan wrote: »I havent seen you too much on the boards joe, but you've (proper punctuation just for you) made me belly laugh on this and other threads today so I'll be looking forward to reading your posts as much as my other favourites (macaque & Jonny
. Cheers for the chuckles, I like LOLing. 
Me and the monkey?!
Oh the ignominy!
:rotfl:0 -
RenovationMan wrote: »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.
Having tested out a spreadsheet mortgage calculator (and admittedly not yet being able to come up with an conclusive example of why I don't agree with the above statement) I still can't accept what RM is saying. Maybe it's because I don't understand preciselywhat he is getting at. I interpret it as him thinking that there is no difference in the interest paid between an IO or repayment mortgage, even in his own case. That isn't me having my own idea of what I think he means, it is what he typed. I`ve read it several times, and it clearly states that it would not matter if he had an IO or repayment mortage, if you ignore the repayment of the capital in either method, the cost of the interest would be the same. This is not true.
Simple case, compare the amount of interest paid on a 20 year, £300K IO mortgage and a £300K repayment mortgage. Ignoring the capital repayment (which would be £300K for both types of mortgage - in RMs case he is paying down the capital in chuncks at the moment) the amount of interest paid will almost certainly be different between the two products. Which product turns out to be cheaper (excluding the repayment part of each mortgage) will depend on the size, timing and frequency of overpayments.
And I will use a clear example.
Using the spreadsheet using 300K, 20year @2.55%, I discovered.....
IO / REPAYMENT
Monthly payments 637.50 / 1597.03
Interest paid over term of load 153000 / 83286.31
Sum of all payments 153000 / 383286.31
Total capital remaining 300000 / 0
Even if you take a shorter term "snapshot" of the mortgage, the figures would differ. If interest rates were to rise, it would make a difference to both sets of figures, and the increase/decrase in interest costs would also be different.
Now, it might well be that RM makes overpayments on his IO mortgage, indeed it probably will be that the cost of his interest turns out to be less than the £83286.31 in the above example, depending on size and timing of the repayments he makes. And he has asked me to disprove that in his particular case, that the cost of the mortgage (excluding capital repayment) would be no different, IO or not. Well obviously it could be the same if he were to have an IO mortgage and make monthly payments of £1597.03 (including overpayment) or he went for a repayment mortage. If RM had opted for a repayment mortgage in May 2010, and made the same overpayments as he has/will do, then the cost of interest would obviously be less than it is now, as he has paid more off via the £1597.03 monthly payments. For the cost of the interest to be the same over this initail 3 year deal, he would have to reduce the captial overpayments that he makes on the repayment mortgage by a very precise amount, and make the payments on the right days. Stripping out the repayment part of each mortgage (the £300000 in total), the cost of each mortgage is very, very likely to turn out to be different.
It might be that he is saying that the cost of interest is the same, IO or repayment, if no repayments are made. The problem with that is that a repayment mortgage with no capital repayments is an IO mortgage, or a mortgage that a lender will not allow !
And if this explanation is wrong, or doesn't make it clear why I think that RM's original statement is wrong, then maybe RM or some other kind soul would like to explain to me why. The only reason I can see why, is that I am not understanding his statement. If so, could that be made more clear to me ?30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
RM thanked me.
I'm not going to make any judgements, I'm not going to say "I told you so" (I still don't even know if he agrees with me), but at least it appears he might at least acknowledge my reasoning. If he thinks I'm wrong, or would like to correct me on anything, then I welcome it.
After a failed attempt to come to a conclusion yesterday, I woke up with a clearer head, and decided to put "mortgagegate" (LOL!) to rest. I really think that RM will see what I am trying to explain, and agree with me. I'm sure he's intelligent enough to do so. Maybe what went wrong was me misunderstanding his statement. If I did, I wouldn't mind it being explained to me.
I shall now NOT resume my studies of the logical nightmare that is Java programming.
I am now being asked questions. I like this ! Maybe we'll get a proper conclusion.
BTW, You may think that I'm being a bit "arrogant" in the first part of this post. Sorry about that. It is obvious that I am pretty sure I have got this right, but if RM can show me I am wrong, then I'll admit it, thank him, buy him a pint or two (:beer:) and move on.30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
RenovationMan wrote: »DervProf, lets do this in steps or we will still be here when my mortgage ends in 2 years!
Q. What is the difference between an Interest Only mortgage and a Repayment Mortgage?
I will answer you questions, please respond and correct me on anything you think is wrong......
An IO mortgage is where you borrow an amount of capital from a lender, and that lender only expects you to pay the interest cost on the money you have borrowed (plus the full capital amount at, or by then end of the mortgage term). Many IO mortgages will allow for repayments of some, or all of the capital at any time during the mortgage period. If no capital repayments are made, the lender will request the full repayment of of the borrowed amount at the end of the term. If part of the capital has been repaid, the lender will request the balance. If any of the capital is repaid before the end of the mortgage term, the total amount of interest that will be paid will be reduced, depending on the amount/timing of the capital repayment.
A repayment mortgage is where you borrow an amount of capital from a lender, the lender arranges a payment schedule which will both pay interest on the balance of the mortgage, and also pay off all of the capital by the end of the mortgage term. Many repayment mortgages will allow overpayments, which will reduce the mortgage term, and effectively reduce the cost of interest paid over the term of the mortgage. Again, the amount/timing of overpayment will affect the total cost of interest paid by the borrower.
Good. I think that is correct. Next question..........30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
RenovationMan wrote: »Q. So what you are basically saying is that a repayment mortgage is the same as an interest only mortgage except that it also includes a capital repayment part?
Yes I am.
What I am also saying is that there is usually a difference in the cost of each type of mortgage, if you strip out the repayment part (however the repayment part is done).
In response to your added point, yes, I believe those figures to be accurate.30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0
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