UKs biggest lender ends IO mortgages without evidence.

DervProf

RenovationMan wrote: »

A repayment mortgage without capital repayment is Also Known As an Interest Only mortgage.

I'm glad that you agree that my statement is valid and you agree that if you strip out the repayment costs from a repayment mortgage, it has the same cost as an Interest Only mortgage.

:eek:

!!!!!! !

If I have two diamond rings, and pluck the diamond out of one of them, are they still worth the same, and are they both still diamond rings ?

I really hoped we were going to have a moment of realisation. I hoped that one way or the other, one of us would say "oh, I see now". I am left wondering where I can get a repayment mortgage where I can ignore the repayment part.

DervProf

So. If I choose a repayment mortgage, and ignore the repayment part of the payments (even though I have to pay them), I will end up paying the same in interest as I would if I had taken an IO mortgage.

Really ?

Really2

DervProf wrote: »

So. If I choose a repayment mortgage, and ignore the repayment part of the payments (even though I have to pay them), I will end up paying the same in interest as I would if I had taken an IO mortgage.

Really ?

Yes it is the capital repayment that lowers the interest. That is why in the later years of the mortgage you are paying off more capital and less interest proportionaly than the start.

What ever you repay IO or Repayment if you over pay it lowers your IR burden thus reduces your term.
I worked out (last years) 2 years of my current overpayments were equiverlent to 7 years of repayment mortgage capital repayment.

So saving me 5 years.

So a repayment without capital repayment and a IO are exactly the same an interest charge worked out on the amount outstanding.

With my current offset my IO charge has reduced by about 12% by overpaying.

chucky

Really2 wrote: »

Yes it is the capital repayment that lowers the interest. That is why in the later years of the mortgage you are paying off more capital and less interest proportionaly than the start.

What ever you repay IO or Repayment if you over pay it lowers your IR burden thus reduces your term.
I worked out (last years) 2 years of my current overpayments were equiverlent to 7 years of repayment mortgage capital repayment.

So saving me 5 years.

it's amazing that so many people don't see how the reverse of compounding interest works 5/10/15/20 years from now when it relates to their mortgage repayments...

Albert_Einstein wrote: »

“The most powerful force in the universe is compound interest”.

nembot

IO mortgages were a vehicle to provide the opportunity of purchasing a house, when people couldn't really afford it. Let's not go into the future implications, it's not going to be pretty.

wotsthat

I'll have a go.....

£100,000 @ 5.0% over 25 years.

On a repayment basis that's £584.59 per month which gives a total of £175,377 to pay the mortgage down.

On an interest only basis it's £416.67 per month giving an interest total of £125,001 plus the capital of £100,000 to give a grand total of £225,001

Ignoring lost opportunity costs etc. it's cheaper (by some way) to have a repayment mortgage.

This doesn't apply to RM because although he has an IO mortgage he's making large capital payments. In effect he has a repayment mortgage with one payment per year instead of 12.

Is it better to make a single capital payment or 12 per year? I can't be arsed to work it out but I think RM has it under control anyway.

Really2

nembot wrote: »

IO mortgages were a vehicle to provide the opportunity of purchasing a house, when people couldn't really afford it.

But now they hang out on here saying they are too expensive, going to crash etc.:D

Really2

wotsthat wrote: »

I'll have a go.....

£100,000 @ 5.0% over 25 years.

On a repayment basis that's £584.59 per month which gives a total of £175,377 to pay the mortgage down.

On an interest only basis it's £416.67 per month giving an interest total of £125,001 plus the capital of £100,000 to give a grand total of £225,001

You have only factored a repayment for year 25 on IO?
Why do people think the people on IO will only repay at the end of the term? It is not just RM, there are many of us on here offsetting and overpaying to reduce total Interest repayment.

Mean as we are MSE on here you would only do that if you could get a 5%+ return on the money you were saving by not going on repayment.

If you had an IO and used the payments you saved (£167.92 in this case) as capital repayments on the above (and kept doing so as the IO payments got less) they would be identical in every way at the end (25 years = £0).

DexterA

DervProf wrote: »

So. If I choose a repayment mortgage, and ignore the repayment part of the payments (even though I have to pay them), I will end up paying the same in interest as I would if I had taken an IO mortgage.

Really ?

It depends on the interest rate of both the repayment mortgage and the interest only. Interest only normally have a higher rate than their repayment counterparts. So my answer would contradict the bulls answer, I would say no.

Really2

DexterA wrote: »

It depends on the interest rate of both the repayment mortgage and the interest only. Interest only normally have a higher rate than their repayment counterparts. So my answer would contradict the bulls answer, I would say no.

Not true? you don't get a higher rate just becasue it is IO.

a 5% fixed rate could be repayment or IO as you chose the product then the repayment vehicle.

You are talking about higher risk (sub prime) that would also be the same for repayment.